Why is gold holding $4,400 despite Treasury yields near 4.84%?

Gold prices hovered around $4,400 an ounce on Thursday as a softer US dollar offset pressure from elevated Treasury yields, leaving traders focused on inflation data that could settle the debate over next week’s Federal Reserve decision.

Spot bullion was little changed around $4,400 in Asian trading after gaining in the previous session, while December US gold futures hovered near $4,457.

The dollar remained close to a three-week low, helping bullion despite the 10-year Treasury yield trading around 4.84%, near its highest level since 2023.

Dollar weakness cushions the yield shock

Normally, rising Treasury yields would be a clearer negative for bullion because investors can earn more from government debt. However, this week, the dollar has failed to strengthen alongside yields.

Danske Bank strategist Filip Andersson told Barron’s that expectations for a Bank of Japan rate increase, combined with the possibility that the Fed stays on hold, have helped push the dollar lower against the yen.

That currency weakness has provided an important offset for gold because it makes dollar-priced bullion cheaper for buyers using other currencies.

Zaner Metals strategist Peter Grant told The Wall Street Journal that a hotter inflation reading could quickly change that balance by strengthening the dollar and encouraging a more hawkish Fed.

Softer data would likely provide further support for bullion.

PPI and CPI now decide the September Fed trade

August producer prices are due Thursday at 8:30 am ET, followed by consumer prices on Friday at the same time.

Markets are assigning roughly a 60% probability to a quarter-point Fed increase next week, leaving gold unusually sensitive to even a modest inflation surprise.

The economists expect headline CPI to rise 0.4% in August, with core prices increasing 0.2%.

A firmer core reading could strengthen the argument for another rate increase, while softer inflation would give policymakers more room to wait.

The oil shock complicates that outlook. Brent remains above $100 after escalating Middle East fighting, increasing the risk that energy costs keep headline inflation elevated even if underlying price pressures moderate.

Fiscal concerns keep deeper support under gold

Beyond next week’s Fed decision, gold is also benefiting from concerns about US fiscal sustainability and continued reserve diversification.

Federal debt has surpassed $40 trillion, intensifying debate over how easily financial markets can absorb growing Treasury issuance.

A research from MIT economist Ricardo Caballero suggested that very high debt issuance can increase the premium investors demand to hold government bonds.

Central banks remain another structural source of demand.

The World Gold Council said official-sector buyers added a net 23 tonnes in July, with China and Poland among the largest purchasers. China alone added 20 tonnes during the month.