The most significant story of the U.S. economy in September is the surging yields. I don’t think saying “surging” is an exaggeration here.
If you look at the Treasury data for September 2026, the 10-year yield was at 4.79% at the beginning of the month. It ended the month at 5.29%. That is a full 50 basis points higher in 30 days.
The 2-year yield surged from 4.39% to 4.88%.
Even for the shorter-term rates, the 3-month yield went from 3.92% to 4.20%.
To be sure, the shorter-term rates are correlated with the Federal Reserve hiking its target rate. But the longer-term yields are more a consequence of risk, debt, and inflation.
As these yields rise, it means that new debt issued by the Treasury (including rolling over maturing debt) will be at a higher rate. Even if the national debt weren’t growing (which it certainly is), the interest payments would be going up.
Gold Slump
The price of gold, meanwhile, has gone down. It is below $4,200 per ounce. It is interesting that it seems to go down on days when the price of oil is up. This doesn’t make a whole lot of sense.
I know the rationale behind it. If oil goes up, then the price of energy goes up. This means that the Fed might have to be tighter with its monetary policy, which isn’t good for gold.
I think this reasoning lacks foresight. Even the Fed’s “tighter” monetary policy is not so tight. Even as the Fed raises its target federal funds rate, it is still mildly expanding its balance sheet. The Fed can continue to create new money out of thin air even as it temporarily hikes its target rate.
There are many things that can impact the price of gold. It is a supply and demand issue, but it is intertwined with money. The U.S. dollar index can impact the gold price on a day-to-day basis, but it doesn’t make much difference in the long run if all of the major central banks are inflating in unison.
Ultimately, the biggest determination of the gold price in terms of U.S. dollars is how many new dollars are created out of thin air. This is the long-term view. Is there really any sign that the Fed is about to stop its monetary inflation for any significant period of time?
Higher Yields and More Digital Money Printing
If these surging yields stay at these levels or go even higher, it spells trouble for the Fed. The national debt is rising at ridiculous levels. If Congress is adding $2 trillion annually to the debt now, wait until there is some kind of financial crisis or severe recession where tax collections go down.
And again, the higher yields also mean higher interest payments as new debt is issued and old debt is rolled over. This just adds even more to the debt. It is one big bad cycle.
There are only a few ways to deal with this problem. The government could attempt to raise taxes directly, but even here it is unclear how much more they could collect without stifling economic growth even more and causing lower tax collections. The Laffer Curve is a real thing, even if I disagree with people sometimes using it as an excuse to spend more.
We are basically left with 2 options now. One option is for Congress to cut spending. Yes, don’t make me laugh. If things get bad enough, their hand might be forced. But as of right now, there is no sign of that happening. Congress continues to spend more and more.
The other option is to print more money. Most of this would not be actual money printing. It would be accounting entries on a computer. The Treasury sells more debt, and the Fed creates new money and buys this debt.
This is inflation. The inflation of the money supply is what ultimately drives the price of gold higher in the long run. When you have more money chasing the same goods, the price tends to move higher.
In conclusion, the rising yields are actually bullish for gold in the long run, unless you think Congress is going to turn into a bunch of true fiscal conservatives over the coming months. The rising yields are likely to lead to more monetary inflation, which will ultimately drive the price of gold to new highs, at least in nominal terms.