Gold on the Verge of a New Rally – What’s Next?

Gold is approaching a record high, and the coming days will be decisive. The metal has been consolidating since April, but a weakening dollar, falling short-term yields, and rising political risks are giving gold its best opportunity in months to regain momentum.

The inverse correlation between gold and the dollar is once again driving price action. In 2024, this relationship temporarily broke down, as both assets rose simultaneously. But now, with the dollar weakening and gold holding firmly above $3,400 per ounce, the correlation is back in play.

The yield curve dynamic is also key. The spread between 2-year and 10-year U.S. Treasury yields has widened to its largest level since 2022, as short-term yields fall amid rising expectations of rate cuts. This lowers the cost of holding gold and has triggered renewed inflows into gold ETFs after years of outflows during periods of higher rates.

Meanwhile, long-term yields remain steady around 4.3%, as investors demand a higher premium due to fiscal risks and doubts about the Federal Reserve’s independence. Such concerns traditionally increase demand for safe havens like gold.

The combination of cheaper funding, political uncertainty, and a weakening dollar creates a supportive environment for gold ahead of today’s U.S. inflation data (PCE) and amid mixed expectations for Fed policy. Investors will be watching closely to see whether inflation data confirms or undermines expectations of rate cuts, but in either case, gold appears increasingly attractive as a hedge — especially given the U.S.’s politically constrained position and continued reserve diversification by central banks.