Gold’s rally defied typical market behavior as 10-year Treasury yields rose to 4.79% and the U.S. dollar hit a multi-year high. Such conditions usually put pressure on gold due to higher opportunity costs and less favorable prices for non-dollar buyers.
However, growing concerns about US fiscal health and rising deficits have revived demand for gold as a safe haven. Brien Lundin of Gold Newsletter summed up this sentiment: “Dollar strength, rising Treasury yields and a rising gold price are all evidence of global concerns about the US budget situation.”
Central banks have accelerated gold purchases, and individual investors are following suit, wary of inflation risks and signals that the Federal Reserve could struggle to control the bond market.
Is Inflation the Next Catalyst for Gold Prices?
The December jobs report painted a picture of a strong labor market, with 256,000 new jobs and a drop in unemployment to 4.1%. This robust growth has fueled concerns about persistent inflation, complicating the Federal Reserve’s rate-cutting strategy in 2025.
The spotlight now shifts to January 15, when Consumer Price Index (CPI) data will provide a clearer picture of inflation trends. Higher-than-expected pressure could spook financial markets, pushing up government bond yields and potentially allowing gold to play a role as an inflation hedge.