Hawkish stance fails to lift interest rates, UN General Assembly lowers geopolitical premium, real interest rates peak

Huitong Network, September 22—— Gold may enter a phase of consolidation and bottoming out

During the European and American sessions on September 22, the United Nations General Assembly contributed to a marginal easing of global geopolitical risks, prompting a pullback in the geopolitical inflation premium. Spot gold rebounded after probing lower as market resilience became evident.

Previously, it was emphasized in the article that as IRP (Inflation Risk Premium, i.e., broad inflation expectations equal actual inflation expectations plus IRP) gets cleared, TIPS approaching real rates is a crucial observation point. After calculations, long-term 10-year forward inflation is anchored at approximately 2.33%.

The real interest rate equals the nominal interest rate minus expected inflation. For the 2.33% forward inflation rate, inflation expectations are unlikely to drop further, essentially locked in place. Nominal rates, meanwhile, are constrained by high rates’ impact on the real economy and soaring fiscal debt, resulting in limited room for real rates to rise further. Top formation has begun, suggesting gold prices may bid farewell to a unilateral downtrend and enter a critical window for consolidation and bottoming out.

Fed Officials Intensively Hawkish: Anchoring Endogenous Inflation and Terminal Demand

Recently, St. Louis Fed President Musalem and Chicago Fed President Goolsbee have been issuing concentrated hawkish signals.

They pointed out that current inflation drivers have shifted from exogenous geopolitical and energy shocks to overheating US domestic demand, pushing up endogenous inflation in the services sector and refined oil. This means rate hikes are not targeting a one-off energy shock but aim to contain spreading inflation.

Though Bessent's energy strategy has curbed upstream crude oil, refinery capacity mismatches have led to persistently high refining margins, making terminal inflation extremely sticky.

Therefore, Fed policy is fully anchored on tackling inflation, maintaining a tight stance while keeping room for gradual rate hikes, and resolutely ignoring market calls for rate cuts.



Bessent’s Top-down Regulation: Compressing IRP Premium, Reinforcing Gold’s Foundation
The core market change in this round lies in Bessent’s macro regulation: On the one hand, steadily facilitating navigation through the Strait of Hormuz and stabilizing crude oil supply; on the other, by managing fiscal debt expectations, significantly compressing the IRP, namely the risk premium investors demand to hedge runaway inflation.

This has not eliminated endogenous inflation, but has thoroughly capped the upside in TIPS real yields, reversing gold’s unilateral bearish pattern.

Core Pricing Structure: IRP Convergence and Real Rates Peaking

The macro core pricing formula is: TIPS yield = nominal interest rate - true endogenous inflation expectation - IRP

The Fed is supporting high nominal rates, but Bessent’s policies have caused IRP to converge. The 10-year forward inflation expectation is stably anchored at 2.33%. The TIPS real yield (about 2.68) and the nominal yield both show a double-top pattern on daily charts, with upside momentum exhausted, completely closing gold’s downside room.

In the real economy, a TIPS real yield exceeding 2% means extremely high true social financing costs, which will eventually pass through to corporate debt rollovers, consumer credit, and the property market, placing substantial pressure on the macroeconomy.

The unsustainability of fiscal debt servicing: With the massive scale of US debt, maintaining both high nominal and real rates will lead to an explosive rise in US fiscal interest payments, severely squeezing fiscal spending capacity. The fiscal side desperately needs real rates to fall for relief.

Evolution path: In the short term, inflation expectations are anchored at 2.33%, while the Fed keeps nominal rates high due to sticky services inflation. TIPS real rates are likely to remain sticky in the near term, suppressing gold’s explosive momentum;

Market Outlook:

Note: The 2.33% 10-year forward inflation is calculated by assuming IRP ≈ 0, and using the closing prices of 10-year TIPS and 10-year Treasury yields, then finding the difference.


(Spot gold daily chart, source: Yihuitong)

Beijing time 21:57, spot gold is trading at 4337 USD/oz.