Recent weeks have seen inflation expectations rise, pushing US Treasury yields higher and increasing the holding cost for non-yielding assets like gold. Although yields have since retreated, the shifting environment in the US Treasury market is still expected to exert persistent pressure on the gold price through 2026.
In a mid-year commodities report, Mike McGlone, a senior market strategist at Bloomberg Intelligence, reiterated a cautious stance on gold. He noted that gold's valuation relative to US Treasuries reached a near 40-year high in the first quarter of this year, indicating its price is in a historically elevated range.
Why Treasuries Could Outshine Gold
He suggests that if the momentum in the stock market weakens, US Treasuries could become a more attractive safe-haven asset, with their valuation advantage surpassing that of gold.
In a comparison of asset allocation, McGlone pointed out that since 2021, the US Treasury index has consistently underperformed the S&P 500 index against the backdrop of massive monetary stimulus. However, the 30-year Treasury yield rising to around 5.20% in May, a high not seen since 2007, may signal an approaching inflection point in this trend.
He stated, "Since 2021, propelled by the largest monetary infusion in history, the US Treasury index has been in a persistent freefall relative to the S&P 500. Will Treasuries continue to decline against stocks after hitting a yield near 5.20% in May, the highest since 2007, or might this sharp drop signal the end? We lean toward the latter, especially considering the significant mean reversion potential."
Market Focus Shifts Away
In his view, the market's current excessive focus on equities creates an unfavorable environment for gold. He observed, "Gold achieved alpha in 2025—its best year since 1979—but the sole focus in the market seems to have shifted to stocks, which could be a lose-lose scenario for gold. A rising stock market could imply higher Treasury yields and increased competition. If stocks fall, Treasuries might be the winner."
A Potential Turning Point
Looking at a longer cycle, McGlone believes the relative performance between gold and US Treasuries is nearing a new turning point. He mentioned that during the early stages of the global pandemic, gold's outperformance relative to bonds presented a clear buy signal, but this trend may be ending as policy conditions change.
He judges that the Federal Reserve's renewed focus on inflation control is a key driver of this shift. Although the June meeting held rates steady, the latest economic projections still indicate room for a rate hike before year-end, with the Fed Chair continuing to emphasize the goal of price stability.
McGlone noted that if tightening policies persist and real yields remain on an upward trajectory, it would create systematic pressure on gold. He provided a historical comparison, stating that in 7 of the past 26 years when gold delivered negative returns, 6 were associated with tightening policies and rising real yields, with the remaining year lacking a clear dominant factor.
In contrast, during the 5 years where "de-dollarization" or reserve diversification was the dominant theme, gold posted gains each time, with 2025's surge of over 60% marking the strongest performance in 26 years.
Silver Also Faces Constraints
Against the backdrop of gold facing pressure, silver's performance is similarly constrained. McGlone believes that despite strong industrial demand and positive fundamentals, silver is unlikely to decouple from the influence of gold's price movements.
He pointed out that robust manufacturing performance should be supportive for silver prices, yet the market is still pricing silver at an approximate 18% discount. However, he emphasized, "Silver is unlikely to escape the drag from gold's price weakness. Even with strong industrial demand and physical supply deficits, economic drivers remain a key constraint for a sustained rebound."
Overall, as interest rate environments evolve and asset allocation logic adjusts, gold's status as a safe-haven asset is facing competition from US Treasuries. This structural change is likely to continue influencing precious metals market performance for some time to come.
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