CME Group economists: Gold, silver, and bonds are both under pressure in the short term, but their long-term trends will diverge.
2026-07-10 13:10:45
Erik Norland, Managing Director and Chief Economist at CME Group, released his latest market analysis, pointing out that the precious metals and bond markets are currently at a critical juncture of cyclical competition. Investors who want to determine whether gold and silver have bottomed out and whether bond yields have peaked at a medium-term high should follow the core logic of looking at monetary policy in the short term and fiscal policy in the long term.
In 2026, the market's inflation pricing logic will undergo a disruptive shift. The Federal Reserve's policy shift, coupled with the start of a global central bank tightening cycle, will continue to suppress precious metal prices and push up bond yields in the short term. Meanwhile , the generally high fiscal deficits around the world will become the core variable determining the long-term trend of both types of assets , while stock market volatility will add additional uncertainty to the market.
From 2025 to early 2026, precious metals and US Treasury yields diverged significantly, creating a rare market divergence. From 2025 until the end of January 2026, market concerns about rising inflation, weakened central bank independence, and currency devaluation drove gold and silver prices higher; however, during the same period, US Treasury yields continued to decline, indicating that the market had not fully priced in inflation risks.
Erik Norland's analysis indicates that this divergence will completely end by the end of January 2026, with the market uniformly pricing in the risk of sticky inflation, precious metal prices experiencing a significant correction, and US Treasury yields rising rapidly, with the upward trend in short-term yields being particularly pronounced.
The core trigger for this market reversal was the policy shift brought about by Kevin Warsh's appointment as Chairman of the Federal Reserve. Warsh, a long-time opponent of quantitative easing and ultra-low interest rates, formally removed the Fed's accommodative stance in his first policy meeting in mid-June, completely reversing market expectations of further easing. Coupled with the continued rise in US core personal consumption expenditure inflation, climbing from 2.8% to 3.3% year-on-year, market interest rate expectations completely reversed, shifting from a 50 basis point rate cut over two years to a 50 basis point rate hike, directly suppressing precious metal assets with no interest-bearing properties.
As US inflation remains stubbornly strong, major central banks around the world have begun a cycle of monetary policy tightening. Since 2026, the Bank of Japan, the European Central Bank, the Reserve Bank of Australia, and the Central Bank of Norway have all raised interest rates, and the forward yield curves of many countries are simultaneously signaling interest rate hikes. The core driver is that core inflation in most economies has been consistently higher than policy targets.
Nolan stated that in the short to medium term, central bank interest rate hikes will continue to push up market interest rates, further increasing the opportunity cost of holding gold and silver, and putting sustained pressure on precious metal prices. At the same time, the high-interest-rate environment will also negatively impact the performance of bond assets.
Despite the traditional inflation-hedging properties of precious metals, the current surge in inflation has not led to a rise in gold prices; instead, it has created a bearish environment. The reason for this is that the current inflationary pressures are directly forcing a tightening of monetary policy. The negative effects of rising interest rates have completely outweighed the inflation-hedging benefits of precious metals, becoming the core characteristic of the current market.
Compared to flexible monetary policies, the global pattern of loose fiscal policy and high deficits possesses long-term rigidity, becoming a key factor in determining the long-term trend of assets. Since 2017, the US fiscal structure has completely reversed; currently, the unemployment rate is only 4.3%, but the fiscal deficit as a percentage of GDP remains as high as 5% to 6%. Not only the US, but major economies worldwide are generally mired in high deficits. Countries like the UK, France, Germany, and Japan have significantly expanded their fiscal spending, with some economies having deficit ratios far exceeding those of the US. Middle Eastern Gulf countries are also continuously increasing their fiscal spending.
Nolan believes that the large structural deficit will give rise to two long-term market trends: firstly, large-scale issuance of government bonds will push up long-term bond yields; secondly, the risk of fiscal sustainability will enhance the safe-haven value of precious metals . Currently, long-term bond yields in many overseas countries have risen significantly. While the short-term yield increase of US Treasuries is limited due to the expansion of short-term Treasury bills and the Federal Reserve's slowdown in balance sheet reduction, the risk of indirect loose liquidity remains. Currently, there is a lack of political impetus for fiscal tightening globally, and the high deficit pattern is likely to continue for a long time.
The stock market trend is a significant and uncertain factor affecting the prices of gold, silver, and bonds.
If the stock market continues its bull run, it will support economic activity, exacerbate resource supply and demand tensions, and cause inflation to remain excessive, continuously negatively impacting precious metals and bond assets. Conversely, if the stock market experiences a deep correction, economic growth will cool rapidly, forcing global central banks to abandon tightening and resume interest rate cuts, potentially triggering a new bull market in precious metals.
Overall, in the short term, the global monetary tightening cycle will dominate market trends, with gold and silver continuing their weak and volatile pattern, and bond yields more likely to rise than fall; in the long term, the high global fiscal deficit will reshape the asset pricing system and become the core turning point for the market.
Going forward, it is not necessary to focus solely on inflation data. Instead, it is essential to combine short-term monetary policy pace, long-term fiscal deficit patterns, and stock market volatility to accurately grasp the cyclical trends of precious metals and bonds.
In 2026, the market's inflation pricing logic will undergo a disruptive shift. The Federal Reserve's policy shift, coupled with the start of a global central bank tightening cycle, will continue to suppress precious metal prices and push up bond yields in the short term. Meanwhile , the generally high fiscal deficits around the world will become the core variable determining the long-term trend of both types of assets , while stock market volatility will add additional uncertainty to the market.
The market logic has completely shifted, and inflation pricing has ended the divergence between bulls and bears.
From 2025 to early 2026, precious metals and US Treasury yields diverged significantly, creating a rare market divergence. From 2025 until the end of January 2026, market concerns about rising inflation, weakened central bank independence, and currency devaluation drove gold and silver prices higher; however, during the same period, US Treasury yields continued to decline, indicating that the market had not fully priced in inflation risks.
Erik Norland's analysis indicates that this divergence will completely end by the end of January 2026, with the market uniformly pricing in the risk of sticky inflation, precious metal prices experiencing a significant correction, and US Treasury yields rising rapidly, with the upward trend in short-term yields being particularly pronounced.
The core trigger for this market reversal was the policy shift brought about by Kevin Warsh's appointment as Chairman of the Federal Reserve. Warsh, a long-time opponent of quantitative easing and ultra-low interest rates, formally removed the Fed's accommodative stance in his first policy meeting in mid-June, completely reversing market expectations of further easing. Coupled with the continued rise in US core personal consumption expenditure inflation, climbing from 2.8% to 3.3% year-on-year, market interest rate expectations completely reversed, shifting from a 50 basis point rate cut over two years to a 50 basis point rate hike, directly suppressing precious metal assets with no interest-bearing properties.
Global central banks are tightening monetary policy, which is a short-term negative for gold, silver, and bond assets.
As US inflation remains stubbornly strong, major central banks around the world have begun a cycle of monetary policy tightening. Since 2026, the Bank of Japan, the European Central Bank, the Reserve Bank of Australia, and the Central Bank of Norway have all raised interest rates, and the forward yield curves of many countries are simultaneously signaling interest rate hikes. The core driver is that core inflation in most economies has been consistently higher than policy targets.
Nolan stated that in the short to medium term, central bank interest rate hikes will continue to push up market interest rates, further increasing the opportunity cost of holding gold and silver, and putting sustained pressure on precious metal prices. At the same time, the high-interest-rate environment will also negatively impact the performance of bond assets.
Despite the traditional inflation-hedging properties of precious metals, the current surge in inflation has not led to a rise in gold prices; instead, it has created a bearish environment. The reason for this is that the current inflationary pressures are directly forcing a tightening of monetary policy. The negative effects of rising interest rates have completely outweighed the inflation-hedging benefits of precious metals, becoming the core characteristic of the current market.
The normalization of high global deficits will reshape the logic of asset pricing in the long run.
Compared to flexible monetary policies, the global pattern of loose fiscal policy and high deficits possesses long-term rigidity, becoming a key factor in determining the long-term trend of assets. Since 2017, the US fiscal structure has completely reversed; currently, the unemployment rate is only 4.3%, but the fiscal deficit as a percentage of GDP remains as high as 5% to 6%. Not only the US, but major economies worldwide are generally mired in high deficits. Countries like the UK, France, Germany, and Japan have significantly expanded their fiscal spending, with some economies having deficit ratios far exceeding those of the US. Middle Eastern Gulf countries are also continuously increasing their fiscal spending.
Nolan believes that the large structural deficit will give rise to two long-term market trends: firstly, large-scale issuance of government bonds will push up long-term bond yields; secondly, the risk of fiscal sustainability will enhance the safe-haven value of precious metals . Currently, long-term bond yields in many overseas countries have risen significantly. While the short-term yield increase of US Treasuries is limited due to the expansion of short-term Treasury bills and the Federal Reserve's slowdown in balance sheet reduction, the risk of indirect loose liquidity remains. Currently, there is a lack of political impetus for fiscal tightening globally, and the high deficit pattern is likely to continue for a long time.
The stock market becomes a key variable, influencing the turning point of the asset cycle.
The stock market trend is a significant and uncertain factor affecting the prices of gold, silver, and bonds.
If the stock market continues its bull run, it will support economic activity, exacerbate resource supply and demand tensions, and cause inflation to remain excessive, continuously negatively impacting precious metals and bond assets. Conversely, if the stock market experiences a deep correction, economic growth will cool rapidly, forcing global central banks to abandon tightening and resume interest rate cuts, potentially triggering a new bull market in precious metals.
Summarize
Overall, in the short term, the global monetary tightening cycle will dominate market trends, with gold and silver continuing their weak and volatile pattern, and bond yields more likely to rise than fall; in the long term, the high global fiscal deficit will reshape the asset pricing system and become the core turning point for the market.
Going forward, it is not necessary to focus solely on inflation data. Instead, it is essential to combine short-term monetary policy pace, long-term fiscal deficit patterns, and stock market volatility to accurately grasp the cyclical trends of precious metals and bonds.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
