Have metals bottomed, and have yields peaked? Monetary and fiscal policies will determine both – CME's Norland

• Markets shifted in late January 2026 as Kevin Warsh's Fed nomination and rising core PCE inflation (from 2.8% to 3.3% YoY) led investors to price in 50 basis points of rate hikes instead of cuts, pressuring precious metals lower despite their traditional inflation-hedge status.
• Multiple central banks (Bank of Japan, ECB, Reserve Bank of Australia, Norges Bank) have already raised rates in 2026, while major economies continue running large fiscal deficits (U.S. 5-6% of GDP, Brazil 7.7%, China 8.2%), creating structural risks for sovereign debt sustainability.
• Equity market performance remains a wild card: a sustained bull market could keep inflation elevated and pressure both bonds and metals, while a severe correction could force central banks to cut rates and potentially restart a precious metals rally.

Summary: Metals and Bond Yields Analysis

Key Thesis:

Erik Norland, Chief Economist at CME Group, argues that monetary policy will drive short-term movements in precious metals and bond yields, while fiscal policy will determine long-term trends.

Market Dynamics:

• Gold and silver surged through January 2026 on inflation concerns and central bank independence worries
• U.S. Treasury yields declined in 2025 but began rising in late January 2026
• Precious metals have since declined sharply but remain above early 2025 levels
• Market sentiment shifted dramatically after Kevin Warsh's Fed nomination; his anti-QE stance signaled tighter policy

Monetary Policy Developments:

• Fed fund futures now price in 50 basis points of rate hikes (versus 50 bps of cuts previously expected)
• Core PCE inflation rose from 2.8% to 3.3% year-over-year
• Multiple central banks have already raised rates in 2026: Bank of Japan, ECB, Reserve Bank of Australia, and Norges Bank

Fiscal Policy Concerns:

• U.S. budget deficit runs 5-6% of GDP despite 4.3% unemployment (historically unusual)
• Global deficits are elevated: Brazil (7.7%), China (8.2%), France (4.9%), UK (3.9%)
• Japan's public debt approaches 200% of GDP
• Little political will exists globally to implement fiscal tightening

Market Implications:

• Rising rates typically pressure precious metals lower
• Persistent deficits could drive sovereign yields higher and support precious metals long-term
• Foreign government bond yields (Japan, France, Germany, UK) rising sharply
• U.S. yields suppressed by increased T-Bill issuance
• Equity market performance remains critical: continued bull market bearish for bonds/metals; correction could reverse trends