Last night (September 10) was the most intense day for global market information in nearly a month and also marked a stark contrast in market performance: The U.S. Treasury raised the size of its single long-term bond buyback from the originally announced $4 billion to $6 billion, resulting in the 10-year U.S. Treasury yield rising to 4.85%, hitting a new high since November 2023; U.S. August PPI increased month-on-month as expected, but July's data was revised up by 0.1%, pushing the probability of a rate hike to nearly 70%, yet the spot price of gold temporarily fell before reversing to rise, forming a V-shaped chart; Europe was also unsettled last night. The European Central Bank announced a 25 basis point increase in its three key interest rates, with the deposit facility rate rising to 2.50%, marking the second rate hike this year; next door, the Bank of Japan is also poised to act, with the market pricing in a 97% probability of a 25 basis point rate hike to 1.25% next week. From Frankfurt to Washington to Tokyo, major central banks around the world have rarely aligned in a tightening direction. All eyes are on the U.S. CPI to be released tonight.

1. Market Contrast One: $6 Billion Buyback Pushed Down But Yield Hit New High

The scale of the buyback was three times the regular operation, yet it did not meet market expectations? On August 19, the Treasury first announced it would increase the single long-term Treasury buyback size from $2 billion to “at least $4 billion”, but last night the actual buyback amount was further increased to $6 billion. However, the market sold long bonds even cheaper — the yield on 10-year U.S. Treasuries briefly rose to 4.85%, hitting a new high since November 2023; the 30-year yield broke past 5.3%. The main reason for this round of sell-off lies not in inflation expectations, but in systematic withdrawal by buyers; the demand side for U.S. Treasuries is collapsing.

First, sovereign funds are withdrawing. The world's largest sovereign wealth fund, Norway's fund (with AUM of about $2.34 trillion and holding about $215 billion in U.S. Treasuries), on September 1, sent a letter to the Norwegian Ministry of Finance proposing to reduce the weight of government bonds in the benchmark index from 70% to 50%, and reduce the allocation to U.S. Treasuries from 34.1% to 21.9%, corresponding to a reduction of about $80 billion, with funds shifting towards corporate bonds and MBS. Wall Street's “great bull” who has been bullish on U.S. Treasuries for 40 years, Lacy Hunt, has also turned bearish, cutting the duration of their portfolio from about 21 years to less than 1 year.

Second, the rate hike in yen is drawing away the largest piece of overseas buying. Japan holds about $1.1 trillion in U.S. Treasuries, making it the largest overseas holder. The probability of the Bank of Japan raising rates by 25 basis points to 1.25% in September has reached about 97%. As domestic risk-free yields rise, the carry trade funding that previously borrows cheap yen to buy U.S. Treasuries is now flowing back. By May 2026, Japan's holdings have fallen to $1.143 trillion, a reduction of about $67 billion in just one month; in June, Japan and the UK reduced their holdings by $26.4 billion and $8.7 billion respectively, and Turkey almost cleared all its holdings.

Third, while demand is contracting, supply is still expanding. The federal deficit for fiscal year 2026 is expected to be about $1.9 to $2.1 trillion, combined with refinancing of existing debt and technology company bond issuances; while the proportion of “price-insensitive” buyers such as central banks and foreign reserve management agencies is decreasing, the proportion of private investors is increasing, which means that the same scale of sell-off will cause a greater price impact. Charu Chanana, chief investment strategist at Saxo Bank, believes that due to inflation, fiscal risks, and a large amount of bond issuance, bond investors are demanding higher risk premiums, making it increasingly likely for the yield on 10-year U.S. Treasuries to rise to 5%. Thus, “the buyback causing yields to rise” is not a technical anomaly, but rather a public vote — the market is not afraid of the rates, but the creditworthiness of the U.S. government.

2. Market Contrast Two: PPI Pushed Inflation Up, Gold Prices Fall and Then Rise Back?

What did the PPI announce last night? What is the impact of the July data revision on gold? The U.S. August PPI rose 0.4% month-on-month as expected and 5.4% year-on-year, slightly higher than the expected 5.3%. What really made the market nervous was the revised value: July PPI was revised from previously reported flat to up 0.1%, while year-on-year went from 4.7% to 4.8%, with two consecutive months of upward revisions interpreted by the market as a stronger inflation trend. Thus, the expectations for rate hikes quickly heated up, and U.S. Treasury yields surged. As a non-yielding asset, the opportunity cost of holding gold surged, compounded by a stronger dollar, forcing a sell-off: upon the release of the PPI data last night, gold prices fell to $4324.23 at one point, with a New York closing drop of 1.91% to $4314.82. What are the bearish signals currently pressing gold prices?

First, high U.S. Treasury yields. The 10-year rose to 4.93% and the 30-year stood above 5.35%, raising the opportunity cost of holding non-yielding assets.

Second, rising rate hike expectations globally. The probability of a Fed rate hike in September has reached 74%, the European Central Bank has already raised by 25 basis points, and the probability of a rate hike by the Bank of Japan next week is about 97%, with the central interest rate collectively moving upward;

Third, high oil prices. Brent crude broke $100, touching $105 at one point, pushing up inflation expectations while also supporting the dollar. These three factors caused gold prices to drop from $4434 to $4314 last night.

But when looking at it over a longer time scale, these three bearish points are precisely gold's strongest endorsements. After 2022, gold's pricing anchor has switched from real interest rates to the term spread between 30-year and 2-year U.S. Treasuries; the structural rise of super-long bond yields implies more about problems with dollar credit — concerns about the sustainability of U.S. fiscal policy and the independence of the Fed; high yields no longer mean that dollar assets are more attractive but rather expose the fragility of U.S. finances. Similarly, when central banks are forced to raise rates due to supply shocks, the stronger the rate hike expectations, the more they indirectly confirm how stubborn inflation is, while monetary policy is powerless against oil prices and chip production capacity. As for the high oil prices themselves, they are pushing up inflation expectations while also signaling that physical assets are being revalued — former Goldman Sachs commodities research head Jeff Currie believes that global funds are fleeing traditional financial assets, and a super cycle dominated by hard assets like gold and energy has just begun.

3. The Long-term Bullish Driving Anchor for Gold Prices is “U.S. Fiscal Credit”

The market no longer sees gold merely as a purely interest-sensitive asset. The core variable driving gold prices is transitioning from the Fed's policy rates to the sustainability of U.S. fiscal policy. U.S. federal debt has surpassed $40 trillion, with annual interest payments amounting to approximately $1.1 trillion, exceeding defense spending, trapping the government in a spiral of “the more debt expands, the higher the interest burden, the more new debt it needs to issue”; when the Fed maintains high rates to control inflation while the Treasury relies on continuous bond issuance to fill the deficit, the market begins to seriously question whether the credit base of the dollar is still solid.

The flow of safe-haven assets is being restructured: U.S. Treasuries “fall,” gold “is satisfied.” After the Treasury expanded the buyback scale, the 30-year U.S. Treasury yield only briefly fell, and within 24 hours rose again, with investors voting with their feet, expressing distrust in this operation. Meanwhile, global central banks are voting with real money: by the end of 2025, the share of gold in global official reserves will rise to 27%, while U.S. Treasuries will only be 22%, marking the first time since the mid-1990s that gold has once again become the largest official reserve asset globally; in the second quarter of 2026, global central bank gold purchases amounted to 288.9 tons, a year-over-year increase of 62.4% and a quarter-over-quarter surge of 411.1%. The People's Bank of China has increased its holdings for the 22nd consecutive month, with the purchase volume in August setting a new record for the current cycle, and the Bank of Korea has resumed gold purchases for the first time in 13 years. The logic of national reserve management is shifting from “yield first” to “safety first.”

Therefore, gold is displaying a layered market where “short-term looks at interest rates, medium-term looks at central banks.” In short cycles, gold prices are driven by yield rates and the dollar, with PPI exceeding expectations potentially leading to a drop of over $100; in medium to long cycles, what supports it is the repricing of sovereign credit, a process that is almost unrelated to monthly data. TD Securities assesses that even if the Fed leans further hawkish, it may only delay the next round of gold price increases rather than trigger a sustained decline; Donghai Securities regards this round of decline as a structural correction within a long-term bull market. As Jeff Currie put it, “The core issue is always currency devaluation and financial repression; this is the fundamental reason we hold gold.”

4. Major Anticipation: Will Tonight's U.S. CPI Exceed Expectations? Three Scenarios and Signals to Watch

The U.S. August CPI to be released tonight at 20:30 (Beijing time) is the next verification point for this main line and the last key piece before next week's Federal Reserve meeting. It is deemed more significant than usual for three reasons: firstly, the PPI has already brought the matter of “inflation rising since July” to the forefront; the market this time is not only looking at the August figure but also at whether previous months similarly showed upward revisions (adjustments) — the data adjustments often lead to “catch-up” effects that can change policy expectations more than the current month's figures; secondly, energy has a more direct transmission in CPI than in PPI; the 24.1% monthly increase in diesel and Brent crossing $105 will directly enter residential prices through gasoline and transport components; thirdly, the PPI reflects a “whole exceeding expectations, core being moderate” fragmented structure; whether this structure will replicate in the CPI will determine whether the market views this round of inflation as a “one-time shock from oil prices” or “widespread price dissemination.”

Scenario One: Both Overall and Core Exceed Expectations. This is the most uncomfortable combination for gold. The probability of a September rate hike is likely to surge from 74% to over 90%, and the 10-year U.S. Treasury yield will officially challenge the 5% mark, with gold prices expected to test the $4300 level — TD Securities specifically warns that if it effectively drops below $4300, systemic fund selling pressure may significantly increase, and the $4280 or even $4260 range will become a new battleground. It is important to note that the U.S. Treasuries might not benefit in this scenario: the overlapping expectations of rate hikes and fiscal risk premiums could lead to a faster decline in the long end.

Scenario Two: Overall Exceeds Expectations, Core Moderate, Replicating the PPI Structure. This is likely the scenario with a higher probability. The market will interpret this as a one-time supply-side shock; the expectations for rate hikes might not be able to rise further, the dollar's decline would give gold prices room for valuation recovery, and gold prices would likely oscillate between $4300 and $4360, with the $4340 to $4360 range constituting the first area of resistance for rebounds, where a rebound would encounter headwinds that could allow bears to exert force again. The direction remains unclear but volatility is expected.

Scenario Three: Both Overall and Core Below Expectations. In the short term, gold could experience a solid rebound, U.S. Treasury yields might fall, and rate hike pricing could cool. But it is crucial to remain clear-eyed: a month's CPI cannot change the $40 trillion debt stock, the $1.9 trillion deficit, and the $1.1 trillion annual interest payments, nor change Norway's sovereign fund's reduction plan or the collapse of yen carry trade processes. The data may alleviate pressures on the interest rate side but cannot relieve pressures on the credit side.

Last night's two contrasts point to the same answer: the market is re-pricing “safety”. When buybacks do not restore trust, rate hikes do not contain oil prices, and inflation cannot support gold prices, what is truly being traded is not a specific data point, but the failure of an entire old framework. Tonight's U.S. CPI will provide a short-term direction but will not offer conclusions — the conclusions will only emerge after this round of restructuring the global reserve asset landscape is completed.

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