Gold Loses Ground to Bond Market as Inflation Expectations Rise

Gold's safe-haven bid is losing to the bond market as investors weigh geopolitical tensions against rising inflation expectations and higher Treasury yields. The US 10-year yield recently moved above 5.2%, while the dollar strengthened as traders priced a higher path for interest rates.

The opportunity cost of holding bullion has increased, making Treasuries more attractive when markets expect rates to remain restrictive. This explains why gold can fall even while investors are worried about war.

The next test is the August Core PCE report due September 30, with consensus around a 0.3% monthly increase. A hotter reading would strengthen the case for the Fed to keep tightening after September's 25-basis-point hike and could push Treasury yields and the dollar higher again.

Michael Barr has already said further policy adjustments are likely to be needed because inflation remains above 2% and is not returning to target quickly enough. The energy market, with Brent moving back above $105 a barrel on Monday after Trump rejected an Iranian proposal aimed at ending the conflict and reopening the Strait of Hormuz, is becoming the second leg of the gold sell-off.