Theme and Background
This chapter focuses on the breakout rally in the gold market in September 2025, analyzing the core catalysts behind gold prices hitting record highs. The report points out that the surge in long-term government bond yields and the steepening of yield curves in developed markets reflect a loss of market confidence in fiscal and monetary policies, becoming a key factor driving capital flows from long-term bonds to physical stores of value such as gold.
Core Thesis
The author's core investment argument is: Gold's breakout is not driven by cyclical demand but by a crisis of policy credibility. Despite significant rate cuts by G7 countries, 30-year bond yields have continued to rise. This divergence is the fundamental support for gold's sustained strength. The counterintuitive judgment is that in the "everything rally" of September, accommodative financial conditions lifted both equities and gold simultaneously, but gold's rally logic is independent of risk assets, stemming from the erosion of trust in the fiat currency system.
Key Arguments and Data
- Gold Performance: Spot gold rose by $411.01 per ounce (+11.92%) in September, closing at a record high of $3,858.96; year-to-date gains reached 47.04%, the best performance since 1979. In the third quarter, it rose by $555.82 (+16.83%).
- Catalyst Breakdown: Between September 1 and the September 17 FOMC meeting, gold prices rose by approximately $210, primarily driven by long-term yields pricing in an unsustainable fiscal and monetary path. After the FOMC signaled three rate cuts in 2025 (or a total of 75 basis points by December), gold prices gained another roughly $200.
- Yield Curve Steepening: The 2s30s yield curve in G7 countries continued to steepen, with 30-year yields rising counter-cyclically amid rate cuts. The UK 30-year government bond yield surged to approximately 5.70%, the highest in nearly 30 years, causing the pound to fall sharply.
- Fiscal Deficit Pressure: The US debt-to-GDP ratio has reached a historic high of 120%, with a fiscal deficit of approximately 7%. The 2025 budget reconciliation bill (OBBBA) is expected to add another $3.5 trillion to the deficit, exacerbating term premium and credibility concerns.
- ETF Inflows: Gold ETFs have seen year-to-date inflows of 16.20%, and silver ETFs 15.04%, both the best performances since 2020.
| Indicator |
September 30, 2025 |
August 31, 2025 |
Monthly Change |
Monthly % Change |
YTD % Change |
| Spot Gold |
$3,858.96 |
$3,447.95 |
+$411.01 |
+11.92% |
+47.04% |
| Spot Silver |
$46.65 |
$39.72 |
+$6.93 |
+17.44% |
+61.39% |
| NYSE Arca Gold Miners (GDM) |
2,129.10 |
1,764.03 |
+365.07 |
+20.70% |
+122.57% |
| US Dollar Index (DXY) |
97.78 |
97.77 |
+0.00 |
0.00% |
-9.87% |
| S&P 500 Index |
6,688.46 |
6,460.26 |
+228.20 |
+3.53% |
+13.72% |
| US 10-Year Treasury Yield |
4.15% |
4.23% |
-0.08% |
-8 BPS |
-42 BPS |
Companies/Assets Involved
- Gold: Bullish. The report argues that gold's breakout is a structural trend, supported by a crisis of policy credibility and continued central bank purchases.
- Silver: Bullish. Up 17.44% in September and 61.39% year-to-date, approaching historical highs. Tightening supply and strong ETF inflows suggest potential price squeezes.
- Gold Mining Stocks (GDM Index): Strongly bullish. Up 122.57% year-to-date, hitting record highs and the best annual return.
- US Treasuries (Long-term): Bearish. The 30-year yield continues to rise, reflecting market concerns about fiscal sustainability.
- US Dollar (DXY): Bearish. Down 9.87% year-to-date, in a downtrend with no rebound.
Investment Implications
- Increase Allocation to Gold and Silver: Against the backdrop of a policy credibility crisis and fiscal dominance, gold's strategic value as a non-sovereign store of value is highlighted. Silver's industrial demand combined with supply tightness may offer additional upside.
- Reduce Exposure to Long-term Government Bonds: The upward trend in developed market long-term bond yields may persist, especially in countries with severe fiscal deficits like the US and the UK. Investors should reduce exposure to long-term fixed-income assets.
- Focus on Gold Mining Stocks: Rising gold prices combined with cost control provide significant earnings leverage for mining companies. The GDM index's 122.57% year-to-date gain indicates that this sector is a leveraged expression of gold price appreciation.
- Beware of the Fragility of the "Everything Rally": The September "everything rally" was driven by accommodative financial conditions, but gold's rally logic is independent of risk assets. If market sentiment reverses, gold may be relatively resilient due to its safe-haven properties.
Theme and Background
This chapter explores how global geopolitical tensions, surging defense spending, declining central bank policy credibility, and demographic changes collectively push up long-term government bond yields, and analyzes the profound impact of this trend on gold. The report argues that when fiscal and monetary policy credibility is lost, a steepening yield curve becomes the core driver of gold prices.
Core Views
- The rise in long-term government bond yields is not a growth signal, but a reflection of the market's loss of confidence in central bank and fiscal policy. When central banks cut rates but long-end rates rise instead of fall, it means the market is pricing in currency depreciation risk.
- The correlation between gold and the G7 2s30s yield curve has reached R²≈0.93 over the past two years, far exceeding correlations with other indicators such as exchange rates, making it the strongest macro relationship.
- The Fed's current policy is already below the neutral rate, and further easing is expected, which will exacerbate yield curve steepening against a backdrop of damaged credibility, benefiting gold.
Key Arguments and Data
1. Transmission Mechanism of Lost Central Bank Credibility:
- After the Fed's first rate cut in September 2024, the 10-year U.S. Treasury yield rose by approximately 115 basis points, and the 30-year yield rose by about 100 basis points. This is the first time since the hyperinflation of 1980/81 that long-end yields have risen following a rate cut.
- In September 2025, the Fed cut rates by another 25 basis points and hinted at two more cuts before year-end (totaling 75 basis points), but the market reaction was a 5.8% surge in gold (up over $210 per ounce).
2. Divergence in Neutral Rate Estimates:
- The traditional nominal neutral rate is about 3.5% (2% inflation target + 0.75% real rate). By this standard, the federal funds rate at end-2025 (3.50-3.75%) would be exactly at neutral.
- However, the New York Fed's DSGE model shows a real neutral rate of about 2.6%, implying a nominal neutral rate of about 4.6% when adding the 2% inflation target. By this standard, current policy is already accommodative, and the expected rate cuts would leave rates about 100 basis points below neutral.
3. Structural Drivers of Yield Curve Steepening:
- Geopolitics and Defense Spending: Germany plans to more than double defense spending, pushing up long-term neutral rate expectations.
- Central Bank Balance Sheet Reduction: Quantitative tightening reduces bond demand, pushing up term premiums.
- Bank of Japan's Exit from YCC: Long-term bonds are exposed to market forces, increasing volatility.
- Inflation Expectations: Resurgent inflation in developed markets pushes up required yields at the long end.
- Demographics: Aging populations reduce savings, structurally lowering demand for long-term bonds.
- AI Capital Expenditure: Massive data center investments drive up capital demand, causing stocks and long-end rates to rise together.
- Investor Confidence: Loss of trust in political leaders and institutions shrinks the pool of buyers willing to lock in 30-year funds.
4. Warning Signals of Damaged Credibility:
- Long-end yields rise on dovish signals (e.g., rate cuts failing to lower 10-year or 30-year yields)
- Breakeven inflation rates and term premiums jump during economic slowdowns
- Weak demand at long-term bond auctions
- Policy communication appears to bow to fiscal needs
Companies/Assets Involved
- Gold: Core beneficiary asset. The report argues that when the yield curve steepens due to currency depreciation risk rather than growth, gold is an ideal hedge against financial repression. Its correlation with the 2s30s curve over the past two years is R²≈0.93.
- U.S. Treasuries: Long-term bonds (10-year, 30-year) face structurally declining demand and upward yield pressure, especially when central bank credibility is damaged.
- U.S. Dollar: Monetary policy below neutral is expected to weigh on the dollar, further benefiting gold.
Investment Implications
- Go Long Gold: Against the backdrop of Fed policy below the neutral rate and persistently damaged fiscal and monetary policy credibility, demand for gold as a non-sovereign store of value will rise structurally. The strong correlation (R²≈0.93) between yield curve steepening and gold is the most reliable macro trading signal currently.
- Beware of Long-Term Bonds: Developed market long-term bonds face multiple structural headwinds (central bank balance sheet reduction, aging populations, fiscal expansion), with upside risks to yields outweighing downside, especially when the market begins pricing in currency depreciation.
- Watch for BoJ Policy Spillovers: Japan's exit from YCC exposes long-term bonds to market forces, potentially amplifying global long-end yield volatility and further strengthening gold's safe-haven demand.
Theme & Background
This chapter focuses on how internal policy divisions within the Federal Reserve (exemplified by the dovish stance of new Governor Miran) reinforce the macro regime of "fiscal dominance + financial repression," and analyzes the rationale for gold and silver upside under this backdrop. The report argues that policy rates being suppressed below the neutral rate while long-term Treasury yields surge represents a vote of no confidence by the market in debt sustainability, making gold a rational hedge against currency debasement.
Core Views
- Gold's primary driver has shifted from inflation expectations to "hedging currency debasement under fiscal dominance." The report contends that the Trump administration's strategy of "high growth + low rates" aims to make nominal GDP growth outpace the debt burden, but at the cost of financial repression and currency debasement. Gold's rise is the market's "protest vote" against this strategy.
- Silver may be entering a "price squeeze" phase. Although CFTC speculative positioning has increased only modestly, ETFs have recorded net buying for eight consecutive months, and LBMA tradable inventories are near their limits. The supply-demand structure is shifting from investment demand-driven to physical shortage-driven.
Key Arguments & Data
1. Miran's extreme dovish path: At the September FOMC meeting, Trump-appointed Governor Miran presented a rate target well below the consensus (see Figure 4). If his path materializes, the policy rate would be approximately 175 basis points below the neutral rate, alongside GDP growth of about 3% and accommodative financial conditions — an even stronger catalyst for gold debasement.
2. Transmission mechanism of financial repression:
- US debt/GDP is at historical highs, and OBBBA budget expansion is expected to further widen the deficit.
- Policy rates are set below the neutral rate, yet global 30-year bond yields are rising (e.g., UK 30-year yield around 5.70%), signaling a loss of market confidence in fiscal and monetary policy.
- Real yields are suppressed, and inflation is used as a debt management tool, eroding the store-of-value function of the dollar and Treasuries.
3. Silver supply-demand tension:
- Silver rose 17.44% in September to $46.65, up 61.39% year-to-date — the best performance since 1979.
- ETFs have net purchased 107.7 million ounces year-to-date, the highest since 2020; CFTC net long positions have risen only modestly, below the June peak.
- LBMA tradable inventories are near their limits; the price has broken out of its ascending channel (Figure 5), forming a "cup and handle" pattern on the technical chart (Figure 6).
- A divergence between price and positioning data emerges (Figure 7): In the 2020 cycle, silver's rise was accompanied by simultaneous increases in CFTC + ETF positions (green arrows), but currently, silver prices are accelerating while positions are flat, suggesting a supply squeeze.
Companies/Assets Involved
- Stephen Miran (Federal Reserve Governor): His extreme dovish stance is seen as a signal of Trump administration pressure on the Fed; if realized, it would exacerbate currency debasement.
- Gold: Bullish. The report argues that under financial repression, gold's rise is "entirely rational" and expects it to continue climbing.
- Silver: Bullish. Investment demand (ETF) continues to flow in, physical inventories are tight, and technical patterns have broken out. Silver may retest its 2011 all-time highs of $49.80 (intraday) and $48.44 (closing). If silver sustains above $50, it could trigger a market repricing of its store-of-value function.
Investment Implications
- Gold: Under the "financial repression" combination of policy rates below the neutral rate and rising long-term yields, gold is the only physical asset that can hedge currency debasement. Investors should increase gold allocations, especially when the market begins pricing "fiscal dominance" rather than "inflation expectations."
- Silver: The current divergence between price and positioning is an early signal of a supply squeeze. If ETF inflows persist while inventories decline, silver prices could accelerate to break historical highs. Attention should be paid to demand pull from high-economic-value uses (AI, solar) and whether the contraction in low-value uses (photography, silverware) is sufficient to trigger "demand destruction."
- Risks: An unexpected hawkish turn by the Fed or fiscal tightening could interrupt gold's bullish logic; silver is more speculative, and a sudden reversal in positioning data warrants caution.