U.S. Treasury’s gold revaluation could restart the ‘debasement trade’ as yield pressures fade – UBP’s Kinsella
Gold has likely seen the worst of its Treasury-yield-driven losses, and once the Iran situation improves and Fed rate hike expectations ease, the Treasury department itself could provide a new tailwind for bullion prices between now and year-end, according to Peter Kinsella, Head of Investment Services for the UK at Swiss private bank UBP.
Kinsella noted that gold has traded lower since the Federal Reserve’s 25-basis-point rate hike in September.
“The downward move has been rather muted, considering the huge rise in both nominal and real inflation-adjusted interest rates,” he said. “US 10-year yields have risen to highs of 5.30%, and 10-year TIPS yields (a proxy for real interest rate expectations) have risen to levels of just below 3%.”
“Normally, we would expect gold to decline materially in such circumstances,” he wrote. “The modest decline suggests that gold–interest rate correlations have continued to wane.”
Kinsella pointed out that throughout August and early September, investors continued to increase their exposure to gold, even as treasury yields continued to rise. “Retail investors upped their ETF positions and institutional investors increased net longs in the futures markets,” he said. “These flows are normally highly interest rate sensitive; however, there has been little to no discernible reaction to the large rise in long-end interest rates so far.”
“We believe that most of the move in interest rates is now largely complete, giving only limited downside risks for gold and the wider precious metals complex from current levels.”
Meanwhile, central banks continue to buy gold, with China’s central bank one of the largest purchasers of bullion once again in 2026. “The pool of central banks adding to their gold holdings this year has narrowed, though this likely reflects elevated prices rather than an unwillingness to increase gold holdings,” Kinsella said. “The World Gold Council’s latest survey showed that a record 45% of central banks expected to raise their gold holdings over the coming year. This means that gold is likely to be well supported by central bank purchases on any significant dip in pricing.”
In the short term, UBP expects gold to trade within a tight range. “Markets have moved to price in at least three further 25-bp rate hikes in the coming months, but these expectations appear to be on the high side,” he said. “Most of the rise in US core inflation dynamics reflects one-off factors, giving the US Federal Reserve room to ease up on potential rate hikes once the situation in the Middle East is resolved.”
And with rate hikes off the table, bullion prices could actually get a boost from the Treasury in the coming months. “The most pressing upside risk for gold in the coming months would be a potential revaluation of the US Treasury’s gold holdings, which are estimated at just over 8,000 tons,” Kinsella warned. “A revaluation towards current market prices would implicitly devalue the USD relative to gold, thus sending a strong signal to the market and potentially restarting the ‘debasement trade’ which played out in 2025.”
Gold prices declined sharply following the release of this morning’s hotter-than-expected CPI report, and they continue to trade near fresh session lows at the time of writing
Spot gold last traded at $4,079.42 per ounce for a loss of 1.96% on the daily chart.
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