US 10-Year Treasury Yield Approaches 4.2%, Gold Faces Multiple Tests

U.S. Treasury Yields Rise, Gold Faces Increased Pressure

In the past week, market focus has shifted to the bond market. The 10-year U.S. Treasury yield has climbed to 4.15%, coinciding with a general rise in global government bond yields—Japan’s 10-year government bond yield has broken through 1.97%, while Germany’s has reached 2.81%. This wave of rising global bond yields is becoming a significant driver of gold’s downward movement.

Market expectations for a rate cut by the Federal Reserve next week remain strong, with traders betting on an 87% probability of easing. However, paradoxically, as the Fed prepares to cut rates, gold has failed to break through resistance and is instead facing correction risks amid rising U.S. Treasury yields. Last Friday’s release of the US September core PCE inflation index showed a 2.8% annual increase, below the previous 2.9%, easing market concerns about inflation stickiness and dispelling doubts about the new Fed Chair’s continued easing stance amid high inflation. Meanwhile, the December University of Michigan Consumer Sentiment Index rose from 51 in November to 53.3, a five-month high, indicating a recovery in consumer confidence.

What Does the Rise in Bonds Reflect?

Against the backdrop of clear expectations for rate cuts, the 10-year U.S. Treasury yield has continued to rise, revealing complex market logic. JPMorgan Chase’s Global Rates Strategist Jay Barry points out that this round of rate cuts by the Fed is not aimed at ending economic expansion but at maintaining current growth momentum. This logic implies that recession risks are priced lower, limiting the downside for long-term bond yields.

Another perspective comes from PGIM’s Chief Fixed Income Strategist Robert Tipp, who suggests that this rise in bond yields is more of a return to normal interest rate levels after over a decade of ultra-low rates. The era of extraordinary monetary policy born from the pandemic crisis is fading, and markets are readjusting to a normalized rate environment.

The Dilemma for Gold

Higher government bond yields directly increase real interest rates. For gold, which does not generate income, rising rates mean higher holding costs and reduced attractiveness. This explains why gold remains under pressure even though the US dollar index has not strengthened significantly.

More concerning is that if bond yields continue to rise and trigger systemic financial risks, investors often respond with “valuation cuts”—selling off all risk assets, including gold. At that point, gold would not only lose support from declining rates but also be pressured by risk asset sell-offs.

Economist Henrik Zeberg bluntly states that gold’s record gains may be facing a sharp reversal, as this precious metal is on the brink of a significant downturn.

Technical Outlook: Key Resistance at 4200 Tested Repeatedly

From a daily chart perspective, the upward trend since February 2024 remains intact, but gold is currently forming its fourth consolidation range, indicating the rally is weakening. The key resistance level at $4,220 has been repeatedly tested and blocked, suggesting downside risks are accumulating.

If gold cannot effectively break through $4,220, the risk of falling below $4,200 cannot be ignored, with the next support around the $4,000 mark. In the context of rising U.S. Treasury yields, these technical signals are particularly noteworthy.

Summary

The trajectory of the 10-year U.S. Treasury yield has become the main variable influencing gold’s movement. Whether it’s the shift in Fed policy logic, the trend toward rate normalization, or systemic risk concerns, multiple pressures are weighing on gold. Given the ongoing resistance at $4,220 on the technical front, investors should remain vigilant and monitor whether gold will re-enter a downward correction pattern.