30-year bond above 5%, gold at 27% of reserves: markets reposition

The 30-year bond tops 5% and gold now outweighs the dollar in reserves

The yield on the 30-year US Treasury bond has stayed above 5% for the longest stretch since the financial crisis began: 27 days so far this year, nearly 19% of all trading sessions, the highest figure since 2007. This is no isolated data point. In the same week that French yields hit their highest levels since 2008 and German ones since 2011, the Treasury's 20-year bond auction closed at a yield of 5.469%, the highest since 1986, with weak demand. The fixed income market is no longer debating whether lending to states should cost more; it is pricing in the doubt.

At the same time, according to a calculation circulating in the thread, gold has overtaken Treasuries and the dollar as the world's largest reserve asset: it now represents 27% of global reserves, versus 22% for bonds and 15% for the euro. Basel III elevated it to Tier 1 status, the same risk level as sovereign debt and cash. These are two sides of the same move: money is seeking refuge outside the paper issued by indebted states.

The 30-year bond that won't fall below 5%

The figure came from Bloomberg: the US 30-year has exceeded 5% on 27 days so far this year, roughly 19% of all sessions, the most since 2007. Behind the headline lies a repeating pattern. Each time the yield dips below that threshold, the relative lows are higher. The most widely held reading is that 5% has stopped being a temporary ceiling and has become an uncomfortable floor.

The auction calendar reinforces that impression. The Treasury placed $13 billion of 20-year bonds at 5.469%, the highest yield at an auction of that maturity since 1986, the year issuance was discontinued; it resumed in 2020. Morningstar described demand as below expectations. And in June, according to Treasury data, foreign investors sold $72 billion in securities, cutting their holdings to $9.3 trillion.

Some argue the move reflects expectations of higher future inflation and a greater risk of default, and that central banks will do their best to fight it. The opposing argument carries weight too: real rates are still negative, and pushing them above 4% would make Treasury bills more expensive, cool tax revenues and sink the stock market. In other words, bankruptcy. The market is caught between those two walls.

Why is gold rising if bonds pay more?

Because gold has stopped competing with the bond and started competing with the dollar. The metal now represents 27% of global reserves, versus 22% for Treasuries and 15% for the euro, and Basel III placed it in Tier 1, allowing institutions to treat it as a functional reserve asset. China keeps buying: it has absorbed roughly 25% of annual gold production in the first half of the year, and that is on top of production that never passes through official channels. The People's Bank has also moved part of its reserves from London to Hong Kong.

The other pillar is distrust of what is actually in the vaults. Treasury Secretary Scott Bessent stated that all US gold is "present and accounted for" and valued at more than $1 trillion at market prices. Economist Doug Casey's response was that of anyone who has looked at an audit: how does he know, when none has been carried out in decades.

Silver, between $69 and $75

The industrial metal is fighting its own battle. Citi maintains a short-term target of $75 an ounce and forecasts $90 within 6 to 12 months, with investment demand gaining ground over industrial use. Technically, a possible head-and-shoulders formation is being watched: a break of the weekly high at $69.03 would lead to tests of $71.05 and $72.10, with a likely target around $75. Not everyone buys it: some are waiting for further declines before loading up, and others warn that silver was close to oversold after a session in which it fell 5.9%.

The liquidation week left some chunky numbers: silver down 5.4%, gold 4.1%, platinum 4.3%. The diagnosis doing the rounds is hedge fund deleveraging amid a deteriorating global liquidity backdrop. Then came the turnaround: the decision to double the size of bond repurchase operations to support liquidity boosted commodities, with gold jumping $181 in a single session, 4.2%, its biggest gain since February.

Oil and the refinery that never rests

Crude has its own story. The large-scale destruction of refineries in Russia and the Middle East through the wars in Ukraine and Iran is overloading the rest of the world's refineries, which are operating without the necessary maintenance shutdowns to avoid pushing prices even higher. The risk is that a serious breakdown could leave them offline for months. Against that backdrop, Brent has been rocketing, and some are projecting $120.

The political side of the story is priced in too. Leading US business groups warned in a letter against a diesel export ban, arguing it would raise fuel prices rather than lower them. The comparison being drawn is Argentina's ban on beef exports: with no profitable buyers, cattle farming stops.

AI's hidden debt and the consumer switching off

The financial statements of Alphabet, Amazon, Meta, Microsoft and Oracle revealed $1.65 trillion in hidden debt, eight times larger in four years, in their race to build data centers. Morgan Stanley and Moody's have flagged the problem in their reports. In parallel, US home sales hit their lowest level on record in September, with the NAR pending sales index at 66.0.

The deterioration also shows in the long rear-view mirror: in 1971 a new house cost the equivalent of two and a half years of annual income for an average household; now it exceeds ten times that income. Rent went from one-sixth of the monthly paycheck to around 40%.

The question that remains open

The debate over whether yields have peaked remains unresolved. Every sign of consumer weakness pushes one way and every weak auction pushes the other. Meanwhile, gold keeps piling up in Asian vaults and the 30-year bond has spent 27 sessions above 5%. No one has yet explained what happens when both things are true at the same time.