A MacroXX Market Note
Gold’s next move is not merely an inflation story. It is a Treasury-market, dollar, fiscal-policy, geopolitical, and election story.
Today’s data confirmed the difficult backdrop: PCE inflation remains elevated, with headline inflation at 3.7% and core PCE at 3.3%, while GDP growth slowed to a 1.5% annualized pace in the second quarter.
MacroXX believes this matters because gold sits at the intersection of sticky inflation, high long-term interest rates, rising government borrowing needs, and uncertainty about the Federal Reserve’s policy path. Gold may face pressure when Treasury yields rise, but persistent inflation and fiscal concerns can strengthen its role as a store of value.
Gold has pulled back after a strong recent advance, but the macroeconomic forces supporting the metal remain in place. The key question for investors is whether sticky inflation and political uncertainty will outweigh the pressure from still-elevated Treasury yields.
Spot gold fell about 1.3% today to roughly $4,595 per ounce after reaching a more-than-three-month high earlier in the week. This appears to be a consolidation rather than a definitive break in the broader gold story. The next move will be driven by inflation, interest rates, Treasury-market conditions, the dollar, geopolitics, and the approaching November elections.
Inflation remains uncomfortable
Today’s July PCE report did not deliver the kind of disinflationary news that gold bulls—or the Federal Reserve—would have preferred.
The headline Personal Consumption Expenditures Price Index rose 0.2% during July and 3.7% from a year earlier. Core PCE, which excludes food and energy and is closely watched by the Fed, also increased 0.2% for the month and remained at 3.3% year over year. Headline PCE was slightly above the 3.6% annual rate economists expected.finance.
This creates a mixed environment for gold. Inflation running above the Fed’s target supports the case for gold as a store of value and hedge against declining purchasing power. However, sticky inflation also raises the possibility that the Fed will keep interest rates high for longer—or potentially tighten policy further—which can lift Treasury yields and pressure gold.
Gold does not pay interest. Therefore, when investors can earn attractive yields from Treasury securities, holding gold becomes relatively less appealing. The more important question is not simply whether inflation is high, but whether inflation stays high while real interest rates and the dollar remain elevated.
GDP is resilient, not recessionary
The GDP data tell a similar story. Real GDP increased at a 1.5% annualized rate in the second quarter, unchanged from the initial estimate. Consumer spending was revised upward to a 3.4% annualized pace from 3.2%, signaling that household demand remained stronger than initially reported.
The economy, therefore, is slowing compared with the first quarter’s 2.1% growth rate, but it is not showing a clear recession signal. This is important for gold because a sharp recession would likely push Treasury yields down and increase demand for safe-haven assets. Instead, the current data suggest a more difficult “higher inflation, slower growth” environment.
That backdrop can ultimately be constructive for gold—but only if investors become concerned that policymakers cannot bring inflation down without hurting growth or worsening fiscal conditions.
Treasury bonds are crucial
Treasury bonds are central to gold’s next move. Following today’s data, the 10-year Treasury yield edged higher to around 4.65%, which means Treasury bond prices declined modestly.
Bond prices and yields move in opposite directions:
Higher Treasury yields ⇒ Lower Treasury bond prices
Lower Treasury yields ⇒ Higher Treasury bond prices
For gold, falling yields are generally supportive because they reduce the opportunity cost of owning a non-income-producing asset. Rising yields are usually a headwind, especially if the rise is driven by higher real rates and a stronger dollar.
However, Treasury policy may complicate this relationship. The Treasury Department has increased the maximum size of its longer-dated bond buyback operations from $2 billion to at least $4 billion per operation. The initiative applies to longer-maturity Treasury securities and is intended to support market liquidity.
If these buybacks help stabilize long-term bond prices and limit additional increases in long-dated yields, they could provide indirect support for gold. But if inflation remains sticky and investors demand higher compensation for holding long-term U.S. debt, yields may continue to rise despite Treasury’s efforts.
Bessent and financial-system risk
Treasury Secretary Scott Bessent’s recent remarks also matter for gold. The Treasury Department has launched “Operation Economic Outcast,” a sanctions campaign aimed at Iran and the financial networks supporting it. The effort includes scrutiny of sectors such as gold, digital assets, shipping, aviation, and technology.
Bessent also acknowledged the risks of disrupting the global financial system too aggressively. When asked why countries were being given time to sever trade ties with Iran, he said: “Why would I want to blow up the global financial system?”
That comment is important because it highlights a broader issue for markets: the United States is using the dollar-based financial system as a foreign-policy tool, while also trying to avoid destabilizing the system that supports global trade, dollar funding, and demand for Treasury securities.
Gold can benefit from this type of uncertainty. Central banks, governments, and investors may view gold as a reserve asset that is outside the banking system and does not depend on any single country’s currency, payment network, or sanctions policy.
November election outlook
The November midterm elections add another layer of uncertainty. All 435 House seats and 35 Senate seats will be contested, while cost-of-living pressures are expected to remain a major issue for voters.
Markets will watch the election for possible implications for:
Federal spending and budget deficits
Tax policy
Tariffs and trade restrictions
Regulation of banks, technology, energy, and digital assets
Foreign policy and sanctions
The future direction of fiscal policy
Gold does not necessarily rise simply because an election is approaching. However, it often attracts interest when investors become concerned about fiscal deficits, political polarization, inflation, currency policy, or geopolitical uncertainty.
What may happen next
The case for higher gold prices remains intact if inflation stays above target, Treasury yields stabilize or decline, the dollar weakens, and political or geopolitical risks intensify.
A more bullish outcome for gold would involve:
Inflation remaining near or above current levels
Lower real Treasury yields
Increased Treasury-market stress
Rising concerns over federal debt and deficits
Stronger central-bank or safe-haven demand
Greater uncertainty before the November election
A bearish outcome would involve:
A sustained rise in Treasury yields
A stronger U.S. dollar
A more hawkish Federal Reserve response to inflation
Continued resilient economic growth
Reduced geopolitical tensions and less election-related uncertainty
My base case is that gold remains volatile in the near term. Today’s decline is understandable after a rapid rally and in response to inflation data that keep Treasury yields elevated. Still, persistent inflation, fiscal concerns, Treasury-market sensitivity, sanctions-related uncertainty, and the November election provide a foundation for continued investor interest in gold.
The most important market indicators to monitor are the 10-year and 30-year Treasury yields, real yields, the U.S. dollar, upcoming Treasury auctions and buyback operations, Federal Reserve communication, and election-related fiscal-policy proposals.
This article is for educational and informational purposes only and should not be considered investment advice.