Gold Leads as Faith in Fiat Falters

Key Takeaways

• Gold Hits Record Highs: Gold surged nearly 12% in September to an all-time high of $3,859 per ounce, up 47.04% year-to-date, leading all major asset classes.

• Yield Curve Steepens on Lost Trust: Rising long-term bond yields reflect waning confidence in fiscal and monetary policy, driving investors toward tangible stores of value like gold.

• Central Banks Anchor the Bid: Persistent central bank buying underscores gold’s status as a trusted reserve asset amid mounting concerns over debt and currency debasement.

• Fed Policy Set to Fall Below Neutral: Expected rate cuts below the neutral rate could create a “run-it-hot” market, boosting inflation expectations and weakening the U.S. dollar.

• Silver Rally: Silver surged 17.44% in September and 61.39% year-to-date, nearing record highs as tightening supply and strong ETF inflows signal a potential price squeeze.

Performance as of September 30, 2025

Source: Bloomberg and Sprott Asset Management LP. Data as of September 30, 2025.
* BPS stands for basis points. **ETF holdings are measured by Bloomberg Indices; the ETFGTOTL is the Bloomberg Total Known ETF Holdings of Gold Index; the ETSITOTL is the Bloomberg Total Known ETF Holdings of Silver Index.

Gold Market: Breakout Catalysts

In September, spot gold increased $411.01 per ounce (or 11.92%) to close the month at $3,858.96, an all-time closing high. At the end of September, gold was 47.04% higher than at the start of the year, its best year-to-date performance since 1979. Gold is well on its way to being one of the best-performing asset classes for a second straight year. In the third quarter, spot gold rose $555.82 per ounce (or 16.83%), another exceptional quarterly performance. 

Gold’s 47.04% rally this year marks its most powerful advance since the late 1970s.

Gold broke out of its bullish⁷ flag (see Figure 1) and steadily extended its record-setting breakout throughout September. The initial price breakout catalyst was driven by a dramatic rise in developed-market long-end bond yields and a rotation out of long-duration assets (i.e., 30-year bonds) into non-fiat stores of value, such as gold. The headline driver began with the UK 30-year bond yield surging to ~5.70%, its highest in nearly three decades, alongside a sharp drop in pound sterling as markets priced in higher inflation risks, runaway debt and deficit levels, government budget uncertainty and reduced issuance of ultra-long gilts (UK government bonds). These pressing issues were not confined to the UK, however. Virtually all developed economies have similar concerns, creating pressure on almost all long-end bond yields, steepening 2s30s yield curves⁸ globally and sparking the gold rally.

During September, gold rose about $210 per ounce between the start of the month and the September 17 meeting of the U.S. Federal Reserve’s Open Market Committee (FOMC). This rise was catalyzed mainly by long-end yields pricing an unsustainable monetary and fiscal path for the developed economies. Then, when the FOMC indicated it would cut rates three times in 2025, or likely 75 basis points by the time of the December FOMC meeting, gold rose another ~$200 per ounce into the month-end. Surprisingly weak employment data forced the Fed to focus on the labor market at the expense of inflation, thus prioritizing one side of its dual mandate. The market began to price in the likely effects of the federal funds rate falling to either the neutral rate⁹ or below—that is, higher growth and inflation in a “run-it-hot” monetary policy setup.

At the same time in September, the broad equity market (as measured by the S&P 500 Index) rallied for the fifth straight month to an all-time high. September was an “everything rally” month as loose financial conditions benefited all financial assets. Risk assets were well-supported by expected rate cuts, ample liquidity, robust economic numbers led by technology spending, positive earnings revisions, easy financial conditions and heightened investor risk appetite. Equities were further aided by massive share buybacks and continuous volatility selling across various fund strategies and yield enhancement products.

Figure 1. Gold’s Record-Setting September

Source: Bloomberg. Data as of September 30, 2025. Gold bullion spot price, U.S. dollar/oz. Moving average convergence/divergence is a trend-following momentum indicator that shows the relationship between two exponential moving averages. Past performance is no guarantee of future results.

Yield Curve Steepens as Trust Declines

Long-end bond yields for most developed markets rose sharply in 2022 as inflation proved to be more than transitory. While two-year yields peaked in 2023 and began to decline, reflecting the policy rate path of the G7¹⁰ central banks, the 30-year yield diverged and has been climbing higher (see Figure 2). 

Even after aggressive G7 rate cuts, 30-year yields keep rising — a credibility gap that continues to underpin gold’s breakout.

The recent global yield steepener was driven not by cyclical demand, but by credibility. Policy rates are transmitted through long-end loan markets (mortgages, investment grade and high-yield bond issuance, project finance, discounted cash flow models), so losing faith in policy keeps term premia persistently elevated. Despite rampant rate cuts across G7 countries, long-end yields continue to track higher, unlike prior rate-cutting cycles. In such regimes, policy easing does not bring yields down across the curve as the market loses trust in central banks. 

Figure 2. Rising 2s30s YR Bond Yield Curve (2019-2025)

Source: Bloomberg. Data as of September 30, 2025. Average G7 30-year and 2-year bond yields, and the difference between them in percentage points. Past performance is no guarantee of future results.

There are several possible reasons why long-end yields in developed markets have been rising, and the intensity of this rise varies by country. 

Still, the following factors are the most likely and common for developed markets:

• Government deficits and credibility. Large and growing debt levels and fiscal deficits across the G7 are ballooning the expected supply of sovereign bonds. For example, the U.S. had already reached an all-time high of 120% debt-to-GDP and a ~7% fiscal deficit before the One Big Beautiful Bill Act (OBBBA), the 2025 budget reconciliation law, adds an estimated $3.5 trillion to the deficit, compounding term premium and credibility worries. Once fiscal confidence is questioned, the required yield level to attract bond buyers rises. As discussed in our recent commentaries, most advanced economies have likely entered a state of fiscal dominance, where fiscal needs take precedence over and constrain monetary policy. Financial repression measures have already begun (with more in the future) to cap yields at the expense of monetary debasement.
• De-globalization and capital flows. As the world rapidly de-globalizes (from a unipolar to a multi-polar world), the recycling of trade surpluses from countries such as China and oil exporters into U.S. Treasury bonds has declined, reducing the bid for yield. The capital-light era of inexpensive, China-made capital goods (offshoring to low-cost locales) is reversing or may be over. The current massive capital expenditure on technology and IT infrastructure demands greater investment (capital-intensive), which in turn pushes equilibrium long-term interest rates higher.
• Geopolitics and defense outlays. A multi-polar world becomes a more dangerous world, and defense budgets are soaring (including higher NATO spending: Germany plans to more than double expenditure), increasing investment demand and raising neutral long-term rate estimates. 
• Central banks and monetary policy. Quantitative tightening adds to term premiums as central bank balance sheets shrink. The Bank of Japan’s exit from its policy of buying bonds to control yield curves exposes long bonds to market forces and higher volatility. This exposure of long bonds to market forces has reasserted itself after decades in which they were shielded by central bank actions.
• Inflation and expectations. Reawakening inflation, plus broader concerns about developed market inflation, push up required yields at the long end, even as front-end policy is easing. 
• Demographics and institutional demand. As developed market populations age and birth rates decline, dependency ratios are increasing, thereby reducing aggregate savings. In general, retiree drawdowns and maturing defined benefit schemes are structurally shrinking demand for long bonds. 
• Technology and productivity. A massive capex cycle around AI (artificial intelligence) data center power and related infrastructure can see equities and long bond rates rise together as demand for capital soars. 
• Investor confidence. A loss of confidence in political leaders and institutions is shrinking the cohort of buyers willing to lock up capital for 30 years without a higher premium. 

Gold Takes Its Cue from the Steeper Spread

In overly simple terms, the long-term yield can be viewed as the average expected path of future short-term interest rates and the term premium. When central bank credibility is robust, both components tend to compress. But when credibility is in doubt, both can expand. 

If central banks are credible, markets will follow and react to central bank policy, whether in rate decisions, balance sheet actions (such as quantitative easing or quantitative tightening), or alignment with fiscal policy. This trust enables the central bank to lower yields across the curve with forward guidance, without necessitating significant changes to the policy rate.

When credibility is lost, however, central bank rate cuts may fail to lower yields, and they can even tighten them if markets expect inflation to remain sticky or fear fiscal dominance. In such cases, long-term yields rise due to both a higher expected rate path and an elevated term premium. In September 2024, the Fed began its first steps in the current rate-cutting cycle and had cut rates by 100 basis points by December 2024. After pausing for nine months, the Fed began its second round of rate cuts in September 2025 with a 25-basis points cut and indicated two more 25-basis points cuts by December 2025. 

Immediately after the September 2024 rate cuts, 10-year U.S. Treasury yields increased by ~115 basis points and the 30-year yield rose by ~100 basis points. For the first time since the hyperinflation days of 1980/81, long yields increased after a federal funds rate cut as the bond market revolted against Fed policy.

 When fiscal credibility erodes and long yields stay elevated, investors price in currency debasement, driving curve steepening and gold buying.

The transmission of policy rates into loan markets matters most in areas like 30-year mortgage rates in the U.S., corporate weighted average cost of capital (WACC), primary debt issuance, public debt servicing costs and asset valuation discount rates. When 10- to 30-year bonds sell off, this transmission mechanism becomes impaired, regardless of where the policy rate is set.

Warning signs of eroding credibility include long yields rising despite dovish signals (e.g., rate cuts that fail to lower rates on 10-year or 30-year bonds), estimates of breakeven inflation and term premiums jumping while growth softens, weak demand in long-duration bond auctions, and policy communication that appears subordinated to fiscal needs. Over the past year, we have seen examples of all the above.

This dynamic has implications for gold. When fiscal and monetary credibility is questioned and long-term yields resist easing, markets begin to price in greater currency debasement risk. This risk steepens the yield curve and increases demand for non-fiat stores of value, especially gold. Over the past two years, gold’s correlation with the G7 2s30s yield curve has been the strongest macroeconomic linkage in our work (R² ≈ 0.93), far outpacing correlations with currency and other metrics (see Figure 3). This lack of confidence in central banks and their faltering credibility is widespread across developed market economies, resulting in a global bid for gold.

Figure 3. Gold Tracks the 2s30s Yield Curve 

Source: Bloomberg. Data as of September 30, 2025. Correlation coefficient (r-squared) between gold bullion spot price and 2s30s yield curve, which is the difference between the 30-year U.S. Treasury yield and the 2-year U.S. Treasury yield. Past performance is no guarantee of future results.

Idling Below the Neutral Rate

Following the September 17 FOMC meeting, the median dot plot of expectations for rate cuts by FOMC participants indicated 75 basis points of cuts in 2025 (see Figure 4). This would take the target federal funds rate range from 4.25-4.50% down to 3.50-3.75% by December. On a conventional yardstick, a reasonable nominal neutral rate has been ~3.5% (the 2% Fed inflation target plus a ~75 basis points real federal funds rate). By that gauge, policy would be right on neutral by late‑2025.

However, the latest update to the New York Federal Reserve’s dynamic stochastic general equilibrium (DSGE) model¹¹ puts the real neutral rate near 2.6% and by adding the 2% inflation target, we get a ~4.6% nominal neutral rate. By that measure, the current stance is already accommodative. If the Fed delivers the expected 2025 rate cuts, the federal funds rate would be ~100 basis points below neutral on this reading. It would be outright stimulative against the backdrop of very easy financial conditions and buoyant risk assets. In its own framing, Fed policy is not only not restrictive, but also already stimulative and will become more so. Furthermore, the NY Fed’s DSGE model indicates that easy financial conditions push up the estimate of the neutral rate.

With the Fed set to run policy below neutral, gold is rallying as markets price in easier money and rising debasement risk.

A below neutral rate monetary policy with already‑easy financial conditions is calculated to boost the growth/inflation mix, lower real policy rates, and put downward pressure on the U.S. dollar. In credibility-constrained regimes, where markets doubt fiscal-monetary alignment, term premia at the long end stay sticky even as the front end declines. The result is steepening across the yield curve,¹² which correlates very strongly with gold (+90% past two years) as shown in Figure 3. 

When the curve steepens due to debasement risk rather than growth, gold is a highly desired hedge asset against financial repression across all investment funds, central banks, and sovereign entities. Between the FOMC meeting on September 17 and the end of September gold rose by over $210/oz or 5.8%. This is a significant price move higher as markets appear to be quickly pricing in the monetary stance we have described and its debasement effects.

The FOMC publishes its participants’ assessment of appropriate future monetary policy rates (see Figure 4). Based on these we can project two possible scenarios and sets of rate ranges:

⦁    Base Case: The Fed Dot Plot Path. The federal funds rate is expected to reach 3.50–3.75% by the December 2025 FOMC meeting, compared to the ~4.6% nominal neutral rate posited by the New York Fed’s latest DSGE model. This suggests that the federal funds rate would be about 100 basis points below the neutral rate, which would likely continue driving growth and inflation impulses (i.e., a run-it-hot policy).

⦁    Aggressive Case: The Miran Dot Plot Path. At the September 17 FOMC meeting, Stephen Miran, a recent Trump appointee to the Fed Board of Governors, provided a target level for the federal funds rate that was much lower than the consensus (see Figure 4). His action was perceived to reflect the Trump administration's desire for a more dovish Fed monetary path. If this aggressive easing scenario materialized, the policy rate would be ~175 basis points below the neutral rate, in addition to ~3% GDP growth and easy financial conditions. This extreme scenario could be an even stronger impulse for the debasement-driven hedge bid for gold.

Figure 4. The Miran Outlier

Source: U.S. Federal Reserve.

The gold price movement in September indicated that the market was pricing in fiscal dominance and financial repression via monetary subservience, the defining feature of the current macro regime. With the U.S. debt-to-GDP ratio at an historic high and the fiscal deficit swelling further under the OBBBA’s projected multi-trillion-dollar budget expansion, it appears the Trump administration has embraced a “run-it-hot” policy stance. Its implicit strategy is to grow nominal GDP faster than the real burden of debt. However, this approach comes at a cost and risk.

Financial repression is the mechanism through which this cost is transmitted. Policy rates are being set below the neutral rate. Rising gold and global 30-year yields have become the market’s protest vote. Long-end yields are rising despite front-end easing and signaling skepticism about the sustainability of fiscal and monetary policies. The net effect is monetary debasement. 

When real yields are suppressed and inflation is encouraged as a tool of debt management, the value of monetary assets erodes. U.S. Treasuries and the dollar, once unquestioned stores of value, are now subject to the slow grind of inflationary dilution. In such an environment, investors are seeking other stores of value. Gold’s meteoric rise and persistent bids seem completely rational in an environment of financial repression and currency debasement. In this environment, we expect that gold is likely to continue to rise.  

Silver Market: Potential Price Squeeze

Spot silver increased $6.93 per ounce (or 17.44%) in September to close the month at $46.65, its highest closing price since April 2011, and just below its all-time closing high of $48.44. By month-end, spot silver was up 61.39% since the start of the year, its best year-to-date performance since 1979. Like gold, it is well on its way to being one of the best-performing asset classes for a second straight year. During the third quarter, spot silver increased $10.54 per ounce (or 29.18%), making for another exceptional quarter. 

Silver’s steady climb is turning into a breakout. Supply is thinning, and investors are taking notice.

Silver advanced steadily through the month, tracking the gold price movement higher. CFTC net silver (non-commercial) positioning¹³ rose only modestly in September (and was still below June’s peak), but ETF buying¹⁴ increased by 2.2% (17.9 million ounces) and has now increased eight months in a row. Year-to-date, silver buying in ETFs has totaled 107.7 million ounces, the most since 2020. In prior commentaries, we have noted the possibility that silver could be entering a potential price squeeze situation as the amount of available free-trading silver (per LBMA vault data¹⁵) is reaching its limits. In Figure 5, we show how the silver price has broken out of its rising channel in a squeeze-like manner and is quickly approaching its all-time intraday high of $49.80 made on April 29, 2011.

Figure 5. Breakout to New Highs (2021-2025)

Source: Bloomberg. Data as of September 30, 2025. Silver spot price, U.S. dollar/oz. Moving average convergence/divergence is a trend-following momentum indicator that shows the relationship between two exponential moving averages. Past performance is no guarantee of future results.

As silver approaches its all-time price high, the very long-term secular chart (Figure 6) shows silver is forming possibly the largest cup and handle pattern¹⁶ we have ever seen. In our view, for the silver price to keep rising, there would need to be severe demand destruction in lower economic value-added end uses for silver, like photography and silverware. Meanwhile, there would need to be a growing demand for higher economic end uses, such as electrical and electronic demand from AI-related spending, photovoltaics and other technology-related demand. Supply demand data confirm both trends. However, as we have noted, investment demand remains the wild card. Historically, investment demand can swing wildly and can become relatively price inelastic given market conditions. The Silver Institute provides a supply and demand table that illustrates these trends.

 As far as we are aware, there is no central bank or sovereign entity that views silver as a neutral reserve asset, but there are investment funds and other investors that do consider silver to have a reserve value. Silver’s correlation to gold over any time frame has stayed consistently high. If silver were to trade above $50 sustainably, it could be a sign that silver’s economic worth and store of value function was being re-evaluated, or it could be a mark-to-market reality repricing of the metal. 

Figure 6. Forming a Cup and Handle (1975-2029)

Source: Bloomberg. Data as of September 30, 2025. Silver spot price, U.S. dollar/oz. Moving average convergence/divergence is a trend-following momentum indicator that shows the relationship between two exponential moving averages. Past performance is no guarantee of future results.

The move in silver prices relative to CFTC and ETF positioning (proxy investment fund holdings) is another way to illustrate that a potential silver price squeeze may be in play. In Figure 7, the upper panel shows the silver price accelerating while the positioning data remains flat (lower panel). Since central banks and sovereigns are not buying silver (unlike gold), most of the silver pricing is in the hands of investors. In the prior 2020 cycle, there was a notable increase in CFTC + ETF silver holdings commensurate with the silver price (see the green arrows). Today, that pricing relationship is diverging, possibly an early indication of the long-awaited silver demand squeeze.

Figure 7. Silver Prices versus Positioning (2016-2025)

Source: Bloomberg. Data as of September 30, 2025. Silver spot price, U.S. dollar/oz. CFTC silver holdings refer to long positions taken by non-commercial traders as defined by the Commodity Futures Trading Commission (CFTC), such as individual investors and hedge funds, who buy futures contracts primarily for speculation, and do not have a direct business interest in the commodities they trade. ETF silver holdings refer to silver held by exchange traded funds for investment purposes. Past performance is no guarantee of future results.

Footnotes