Recent bond market dynamics have placed significant pressure on gold, as inflation concerns have driven yields higher, increasing the opportunity cost of holding the non-yielding asset.
Although U.S. Treasury yields have recently begun to retreat, one market strategist suggests this shift may not be sufficient to provide substantial support for gold in the second half of the year.
In a mid-year commodities report, a senior market strategist at Bloomberg Intelligence reiterated a bearish outlook on gold, noting that its valuation relative to U.S. Treasuries reached its highest level in nearly four decades during the first quarter of this year.
He added that at current levels, if the momentum in U.S. equities begins to slow, U.S. Treasuries could become a cheaper and more attractive safe-haven asset than gold.
The strategist stated, "Following the largest liquidity injection in history, the U.S. Treasury index has been declining relative to the S&P 500 since 2021. Will Treasury yields, which reached around 5.20% in May (the highest level since 2007), continue to weaken relative to stocks, or is this 'cleansing' phase nearing its end? We lean towards the latter, primarily based on significant mean-reversion potential."
He pointed out that while gold demonstrated exceptional performance in 2025 (up 60%, its best annual showing since 1979), the current market's "sole narrative" has shifted towards equities, which could create a dual headwind for gold:
Rising stock markets → push up interest rates, increasing competition for risk assets.
Falling stock markets → U.S. Treasuries attract safe-haven flows once again.
He emphasized that the relationship between gold and U.S. Treasuries is entering a new inflection point cycle. The early stages of the pandemic signaled a buy for gold relative to bonds, but the Federal Reserve's renewed focus on inflation control and price stability may indicate the end of the trend observed over the past six years.
Although the Federal Reserve held rates steady at its June meeting, the latest economic projections hinted at potential rate hikes later this year, with the Fed Chair emphasizing that the policy focus will remain on price stability.
The strategist noted, "If a tightening policy and rising real interest rates become the dominant macroeconomic environment, gold will face pressure in 2026. Over the past 26 years, gold posted negative returns in 7 years, with 6 of those occurring during tightening cycles with rising real rates. Conversely, in the 5 years driven by de-dollarization or reserve diversification, gold rose every time, with 2025 recording a historic gain of over 60%."
He also indicated that as gold faces pressure, silver is likely to be dragged lower. Despite robust industrial demand and physical supply shortages, macroeconomic factors are expected to remain the primary driver of its price direction.
The strategist concluded, "Even with solid industrial demand and supply deficits, silver is unlikely to decouple from a downward trend in gold. Economic drivers will remain the core variable limiting its recovery."
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