Gold has broken below the key $4,230 support level, and with U.S. Treasury yields surging and the dollar strengthening, the market has once again launched a selling wave. At present, inflows into gold ETFs have become the only core hedging force supporting the gold price.

According to commodity strategist Ole Hansen, the metal's ability to withstand losses is now facing an extremely harsh test. Under the persistent suppression of high real interest rates, the market has produced a set of deeply contradictory signals: long-term debt risk favors gold's safe-haven properties, but a short-term liquidity crisis actually triggers gold selling.

Multiple Bearish Factors Converge, Gold Breaks Below Key Support

Hansen stated that gold's price action early this week shows that its ability to maintain investment buying in an environment of continuously rising bond yields is being subjected to an increasingly severe test. He wrote that the weakness in gold is the result of multiple factors working together: rising U.S. Treasury yields, a stronger dollar, and technical selling pressure triggered after the support level was breached, while profit-taking by investors in a major Asian country ahead of the Golden Week holiday further amplified the decline.

The suppression from interest rates has become difficult to ignore. The U.S. 10-year real yield has climbed to an 18-year high, approaching 2.85%, and the short-term rate market is even pricing in three more 25-basis-point rate hikes by the Federal Reserve through next April. Hansen noted that, based on historical patterns, a rapid increase in the opportunity cost of holding a non-yielding asset like gold usually creates strong bearish pressure. Gold itself generates no interest, and when real bond yields rise, capital tends to rotate away from gold and into bonds, which is the core logic suppressing gold prices under the traditional framework.

Yet the current market shows a clear divergence: even as real yields continue to rise, gold ETF holdings are still recovering. This is the most noteworthy phenomenon in the market right now. The core question centers on whether this buying can continue, and the market needs to keep tracking ETF fund flows. This portion of capital is relatively insensitive to interest rate fluctuations and is allocating to gold more out of concern about financial risks stemming from long-term high borrowing costs.

High Yields Create a Dual Effect, Long- and Short-Term Logic Conflict

He analyzed that high yields pressure gold prices through the traditional valuation channel, but at the same time, high rates increase government fiscal pressure and debt servicing costs, pushing up sovereign debt risk and instead enhancing gold's long-term allocation value as a risk hedge.

However, funding turnover pressure becomes a bearish factor in the short term. As rates rise, corporate refinancing risk increases. In the U.S. corporate credit market, weaker-rated borrowers are already showing stress, with CCC-rated corporate bond spreads widening sharply. The spread between CCC and B-rated bonds has already reached levels seen only during past major economic slowdowns.

From a broader market perspective, the spread between U.S. high-yield corporate bonds and Treasuries widened again by 12 basis points last Friday to 294 basis points, the highest level since April. Rising credit market risk has planted the seeds of tightening liquidity. Hansen warned that if such pressure continues to intensify, investors will sell their most liquid assets for cash in order to meet margin calls and other liquidity needs. The gold market, with its ample depth and good liquidity, is highly likely to be chosen for liquidation in such scenarios.

This creates a unique short-term paradox in the gold market: the fiscal and financial pressure brought by high yields raises gold's allocation value over the long term, but once a severe liquidity crunch erupts, the market will sell gold first, directly pushing the price down.

Conclusion

Overall, the sharp rise in U.S. real yields combined with the technical breakdown means gold's resilience is undergoing its toughest test to date. ETF inflows are currently the only bullish barrier, but whether this buying can withstand the dual impact of rates and the dollar remains unknown. The gold market is now intertwined with both bullish and bearish logic: long-term sovereign debt risk is positive for gold, while a short-term liquidity crisis could bring selling pressure. Changes in U.S. real Treasury yields, the dollar index, and credit bond spreads will continue to dominate gold price volatility, and whether ETF flows persist is the key indicator for judging whether gold can hold its support.

Spot gold daily chart Source: Yihuitong. At 12:07 Beijing time on September 30, spot gold was quoted at $4,174.01 per ounce.