After a period of strong correction since the end of January, many investors are questioning whether gold prices have bottomed the cycle or there is still room to decrease.
Mr. Erik Norland - CEO and Chief Economist of CME Group - said the answer depends on two different factors: Short-term monetary policy and long-term fiscal policy.
In a newly released analysis report, Mr. Norland said that 2026 started with two opposite developments. While gold prices increased sharply throughout 2025 and the first weeks of this year due to concerns about inflation, the independence of central banks and the risk of devaluation of legal tender, US government bond yields fell when the market did not really believe that inflation would accelerate.
However, this state has changed since the end of January. As the market became more consensual about the risk of prolonged inflation, gold prices began to fall sharply, while US bond yields rebounded, especially for short terms.
According to Mr. Norland, gold prices were previously supported by three main factors, including concerns about the independence of central banks, the fact that many central banks cut interest rates despite high inflation, and expansionary fiscal policy with large budget deficits in the US as well as many other economies.
However, Kevin Warsh becoming Fed Chairman has changed market expectations. According to CME Group experts, the Fed under Mr. Warsh's management has officially abandoned its monetary easing orientation, causing interest rate expectations to reverse.
Mr. Norland said that in the past few months, the Fed's interest rate futures market has shifted from expectations of cutting about 50 basis points in the next two years to expectations of increasing about 50 basis points. According to him, gold prices often move in the opposite direction to interest rate expectations.
This expert also noted a paradox in the market. Although gold is often considered an inflation hedging asset, rapid inflation may be detrimental to the precious metal because it increases expectations that central banks will continue to raise interest rates. In the US, the core PCE index has increased from 2.8% to 3.3% in recent months, leading to higher interest rate expectations.
Not only the Fed, many other major central banks such as the Bank of Japan (BoJ), the European Central Bank (ECB), the Reserve Bank of Australia (RBA) and the Central Bank of Norway have also raised interest rates in 2026.
However, Mr. Norland believes that the factor that has a greater impact in the long term is fiscal policy. He believes that many large economies are maintaining high budget deficits for many consecutive years.
According to CME Group's analysis, the US currently has a budget deficit of about 5–6% of GDP, while China is about 8.2% of GDP, Brazil 7.7% of GDP, France 4.9% of GDP and the UK 3.9% of GDP. Germany and Japan currently have lower deficits but both plan to increase spending on infrastructure and defense in the coming years.
Mr. Norland believes that if governments continue to maintain or expand budget deficits, the amount of bonds issued will increase sharply, which could push government bond yields up and at the same time strengthen the attractiveness of gold as a value-depositing asset.
Conversely, if countries implement budget deficit control measures, long-term yields may decrease and gold holding demand will also weaken. However, according to this expert, there are currently not many signs that major economies will soon switch to tight fiscal policies.
Regarding the immediate outlook, Mr. Norland said that if central banks continue to raise interest rates, gold and bond prices may still be under pressure. However, in the event that the stock market adjusts sharply, economic growth slows down, forcing central banks to reverse policies, a new upward cycle of gold prices may completely appear.
*CME Group notes that the above analysis is for reference only, not investment recommendations.
