Gold gains ~$40 as Treasury yields retreat from post-CPI peak

The bounce indicates that markets may have priced in too much from the CPI release, with the Treasury selloff that followed the data now appearing excessive. For gold, the crucial factor is less a specific price level than a correlation: as long as 10-year yields continue to ease, bullion benefits, but it remains vulnerable to any uptick in expectations for Fed tightening. A softer dollar combined with lower yields would reinforce the advance, making the dollar index a key indicator to monitor. The US trading session will reveal whether the rally has staying power.

--- Gold and Treasuries are advancing on the same notion: China might not be offloading US debt after all, merely parking it elsewhere.

Summary:

• Gold has risen roughly $40 during Asian trading hours
• 10-year Treasury yields sit more than 20bp under their peak following Wednesday's stronger-than-expected CPI report
• A Bloomberg article suggests China could be keeping US debt via non-US custodians, boosting Canada's holdings to nearly $600 billion
• If that proves true, foreign appetite for Treasuries would be more consistent than official figures imply, buttressing bonds
• Declining yields lower the opportunity cost of possessing gold, aiding the metal's rebound
• Concerns over Iran and AI-related debt are also possibly stoking safe-haven demand

Gold has advanced about $40 during the Asian session, while 10-year Treasury yields have dropped more than 20 basis points from the peak hit after Wednesday's hotter-than-expected US inflation figures. These two moves appear tightly connected, and a Bloomberg report regarding China's potentially concealed US debt holdings seems to be fueling both.

The yield surge followed September's Consumer Price Index, which showed headline inflation at 3.7% and core at 2.6%, both modestly above projections, leading Citi to predict a Federal Reserve rate hike in December. Since that peak, Treasuries have regained much of the ground they lost.

Part of the support appears to stem from a Bloomberg report indicating that Canada's US debt securities holdings have jumped to nearly $600 billion despite a tariff dispute with Washington. Some investors suspect China is driving the increase, shifting US securities to custodian banks outside the United States and hiding its true role in financing US deficits. These claims remain unverified.

The implication for bonds is clear. China's officially reported Treasury holdings have been declining, stirring worries that one of the largest foreign buyers was retreating just as US borrowing intensifies. If China is instead relocating where it holds its bonds rather than disposing of them, foreign demand for Treasuries may be more stable than headline data suggest. That alleviates one of the concerns that had been driving yields upward.

Gold is reaping the benefits of the same trend. Bullion yields no interest, so lower Treasury returns reduce the income investors forgo by holding it, and the metal tends to climb when yields fall. The retreat in yields from their post-CPI high has thus afforded gold room to bounce back.

The China report is probably not the only driver. Heightened geopolitical tensions involving Iran and worries about heavy borrowing by AI infrastructure companies have also boosted demand for safe assets, though this has been less of a factor during Trump's conflict so far. The correlation between yields and gold appears to be the strongest driver, so the next challenge is whether yields can sustain their decline. A renewed rise in Treasury yields, possibly due to firmer Fed hike expectations, would likely pressure gold once more.