Gold Faces Crossroads as US 10-Year Treasury Yield Rise Becomes Key Variable

Gold investors need to be alert to new variables. Currently, gold's technical outlook is at a critical juncture—continuously constrained by the $4,220 resistance level. If this support is broken, the risk of a downward test toward the $4,000 level will significantly increase. From a broader macro perspective, fluctuations in global government bond yields are becoming the biggest threat to gold's future.

**Macro Environment Shift: The Wave of Yield Rises**

Last week, US economic data sent mixed signals. The Federal Reserve's focus on the September core PCE inflation index showed a year-over-year increase of 2.8%, slightly below the previous 2.9%, but the market generally interprets this as a short-term effect of tariffs impacting prices. Meanwhile, the University of Michigan's December consumer confidence index rose from 51 to 53.3, reaching a five-month high, indicating resilience on the consumer side.

Traders are leaning toward expectations of a rate cut at next week's Fed meeting, with an 87% probability. However, a market contradiction has emerged—despite strong expectations for rate cuts, the US 10-year Treasury yield has risen against the trend to 4.15%. This divergence itself is an important signal. Globally, yields on major developed countries' government bonds are also rising: the 10-year Japanese government bond yield briefly touched 1.97%, and the German 10-year bund yield increased to 2.81%.

**Deeper Meaning of Rising Yields**

Market interpretations of this yield rise vary. Pessimists worry that if the increase reflects the Federal Reserve's independence being under political pressure, the Bank of Japan's hawkish rate hike expectations, or concerns over US debt prospects, then systemic risks are lurking in the financial markets. However, JPMorgan's global rates strategist Jay Barry holds a relatively optimistic view. He believes that the Fed's decision to cut rates while inflation remains high aims to sustain economic expansion rather than end growth, which effectively reduces recession risks and sets an upper limit on yields.

Robert Tipp, Chief Fixed Income Strategist at global asset manager PGIM, views this yield increase as a "return"—the long-term low-interest-rate era following the financial crisis has ended, and the world is returning to pre-pandemic normal interest rates.

**Gold Under Dual Pressure**

Whichever explanation prevails, higher government bond yields are negative signals for gold. First, rising real interest rates directly diminish the attractiveness of non-yielding assets like gold. Second, if rising yields trigger broader financial risks, market investors tend to panic-sell, and gold will not escape the fate of being sold off. Economist Henrik Zeberg warns that the record-breaking rally in gold may be on the brink of a sharp reversal.

**Technical Outlook: Hidden Risks in Consolidation**

The daily chart of gold shows that the asset is in an upward trend since February 2024, currently forming its fourth consolidation phase. This suggests that the overall bullish framework remains intact, but short-term correction pressures are building. The key support level to watch is $4,220—if gold repeatedly encounters resistance at this level and ultimately breaks below, there is a need to be cautious of a further decline toward the $4,000 mark.

The continued rise of the US 10-year Treasury yield resonates with the technical pressure on gold, signaling that investors should remain vigilant to the risk of gold re-entering a correction phase.