The logic of the gold bull market is becoming increasingly robust! From hedging against dollar credit to "a 1 basis point allocation leveraging 1.4%," gold prices are no longer solely reliant on the Federal Reserve.

With the recent significant cooling of international oil prices and the surprise action taken by the U.S. Treasury to curb the rise in long-term U.S. Treasury yields, the spot price of gold rose to $4,696.18 per ounce last week, marking a more than three-month high since May 14. However, Federal Reserve Chairman Kevin Walsh emphasized at the Jackson Hole Global Central Bank Conference that the PCE inflation indicator over the past 12 months remains at 3.7%, and the annualized PCE inflation over the past six months is at 4.1%. The 2% inflation target is "firm and fixed," and if core inflation does not clearly decline at a sufficiently fast pace, the Fed "still has work to do." Walsh's remarks leaned clearly hawkish, although they did not directly forecast interest rate hikes, increasing the probability of a rate hike in September from 35.4% to around 60%, leading to a subsequent decline in gold and other precious metals. On the day of Walsh's remarks last Friday, global risk assets, including stocks and commodities, collectively weakened. The three major U.S. stock indices fell, while spot gold quickly dropped 2.9% to $4,567.23. Silver fell 3.5% to $66.81, platinum decreased by 0.6%, and palladium increased by 5.3%. The yields on two-year, ten-year, and thirty-year U.S. Treasuries rose by 12.79, 5.6, and 2.19 basis points to 4.36%, 4.728%, and 5.22%, respectively, while the U.S. dollar index increased by 0.61%. However, the latest statistics show that the bullish forces in gold have not retreated in any significant way despite the upgrade in interest rate hike expectations. Instead, after U.S. Treasury Secretary Janet Yellen expanded the long-term Treasury bond buyback program, reigniting the broader trend of "currency devaluation trading," funds are betting on a continued rise in gold prices in a more restrained and lower-cost mannersuch as through call option spreads, dual-asset digital options, and cross-asset exotic options taking the place of the aggressive unilateral bullish call options seen earlier this year to hedge against the dollar's credit. The implied volatility and bullish skew of gold remain lower than in the first quarter, indicating that market funds still maintain bullish sentiment, yet they prefer orderly rises within the range of $4,900 to $5,300 or breakthrough patterns, rather than repeating the earlier "volatility apocalypse" frenzy. Bitcoin, possessing attributes of both a devaluation hedge and a short squeeze, will depend on whether new spot funds can replace leveraged forced buying to continue its breakout. According to Wall Street financial giants such as Citigroup, Bank of America, and Deutsche Bank, gold is likely entering a new upward segment in a long-term structural bull market. Citigroup has raised its target for the next zero to three months from $4,500 to $4,800, maintaining a 5,000-dollar target for six to twelve months. Deutsche Bank's fair value expectation, based on quantitative models, is around $4,700, believing that the "explosive phase" of gold allocation that began in 2024 has not ended, giving a year-end benchmark target of $4,700 to $5,100. Although Goldman Sachs has lowered its target for the end of 2026 from $5,400 to $4,900 due to the delayed expectations of Fed rate cuts, it remains structurally bullish. Morgan Stanley admits that gold has reached its fourth-quarter forecast of $4,450 ahead of schedule and expects a path to break above $5,000 by 2027. Can a hawkish Fed stifle gold? Orderly bull market bulls turn to exotic options as Wall Street looks again to the $5,000 threshold. Buoyed by the U.S. Treasury's efforts to control borrowing costs, revitalized gold bulls are collectively shifting towards "exotic options" and option market spread strategies, betting on further rises in gold prices. Exotic options are derivative instruments that customize their payoff structures compared to standard call or put options (Vanilla Options). Their final payouts depend not only on the rise and fall of gold but may also hinge on whether prices hit certain barriers, land within specific ranges at expiry, and whether other assets like dollar-yen or crude oil meet conditions. Dual-Digital Options and Triple Binaries are typical cases: Fixed payouts are made only when both gold and foreign exchange or crude oil meet preset conditions, which typically results in lower premiums while offering potential returns leveraging up to 10 to 20 times. The trade-off is that failing to meet any one of those conditions may result in zero returns and comes with higher pricing complexity, liquidity, and counterparty risk. U.S. Treasury Secretary Janet Yellen plans to "at least double" the repurchase scale of existing ten to thirty-year Treasury bonds, a move that has led to significant expectations of dollar injection, depressing the dollar index while also boosting gold and its digital alternative Bitcoin. Facing the erosion of the dollar's purchasing power, investors seeking hard assets have driven the spot gold price up 10% since August; even though gold fell on Friday due to Fed Chairman Kevin Walsh's commitment to combating inflation, it is still expected to post the largest monthly gain since January of this year. Meanwhile, Bitcoin's short positions are being squeezed, pushing its price up 12% since August 19, allowing this cryptocurrency to finally break free from months of stagnation and momentarily exceed $80,000. Akash Doshi, head of gold and metals strategy at State Street Investment Management, stated, "Investors are focusing on re-establishing their bullish positions in gold, through either directly associated demand via exchange-traded funds (ETFs) or through the derivatives market. In my view, the currency devaluation trade has only temporarily paused, not disappeared; as the market moves into September, this trade will become popular again." Recently, investor confidence in gold has been more restrained compared to earlier this year. At that time, U.S. President Donald Trump stated he was not worried about the dollar's decline, igniting a rise in gold. Traders have been buying call option spreads of the SPDR Gold Trust ETF rather than simply purchasing call options; exotic options have also gained popularityboth methods allow for betting on dollar devaluation and substantial future increases in gold prices at lower costs. Doshi remarked in an interview, "Compared to the 'volatility apocalypse' seen in January in the precious metals market, the price performance and derivative trading activities during this rise in August are clearly more orderly and healthier." As shown in the above chart, gold options have exhibited more restraint than at the beginning of 2026during this latest rise, the increases in volatility and skew have not matched those of the first quarter. The implied volatility of gold options has risen but has not yet reached the levels of the first quarter; at the same time, the skew in the options marketsignifying the premiums investors pay for bullish betshas also narrowed. Neelanjan Choudhury, head of exotic options and flow at Bank of America for the Europe, the Middle East, and Africa regions, said, "Unlike at the beginning of the year, the overall volatility of gold is relatively low, leading some investors to believe that the space for the next round of rises will be more limited, and gold prices may exhibit oscillatory movements within ranges, such as between $4,900 and $5,300." Investors are also utilizing dual-asset digital options and other exotic options to bet on rising gold; because the realization of payoff hinges on satisfying specific conditions of the second asset, these can lower the overall costs of bullish gold transactions. Choudhury noted that trades constructed around gold as a currency pair have been quite popular, allowing investors to reduce the option costs through the forex component. "For example, some investors are trading a combination of gold and USD/JPYbuying correlations at levels close to a negative correlation of 20%, betting on gold rising and USD/JPY rising." Choudhury added, "We've received inquiries about hoping to land within predefined ranges for both gold and the USD/CHF currency pair at expiry. We've also seen some inquiries targeting triple binary options, such as combining gold, crude oil, and forex, allowing investors to combine leverages of returns that can even exceed the 10 to 20 times typically pursued by investors." The chart above shows the correlation between gold and USD/JPY. Not only gold benefits from a weaker dollar; Bitcoin's rise also receives an extra boost from short covering. According to statistics from Coinglass, during the period from August 19 to August 21, over $2.5 billion in short positions in the Bitcoin perpetual futures market were forcibly liquidated. This short squeeze turned an initial macro-driven rise into a more intense breakout, while simultaneously attracting capital back into U.S.-listed Bitcoin spot ETFs; since August 19, these funds have attracted over $2 billion. The unresolved question is whether Bitcoin is increasingly being viewed like gold as a sustainable macro hedging tool or if this is mainly a round of position-driven rises amplified by leverage and momentum. As shorts have been collectively wiped out and profit-taking actively unfolds, Bitcoin's next stage may see reduced reliance on forced buying powers and depend more on whether new spot demand is willing to continue chasing upward. As illustrated in the above chart, after Treasury Secretary Janet Yellen's intervention in the U.S. bond market, gold and Bitcoin led the currency devaluation theme assets to initially rise collectively. Despite Walsh's commitment to combating inflation at Jackson Hole, which boosted market bets on the Fed's rate hike trajectory and weakened the rise in precious metals later this week, there is no doubt that investors are still flocking into gold. Joseph Curie, head of equity derivatives structuring at Bank of America for the EMEA region, stated, "Over the past few months, dual-asset digital options in gold have been the predominant bullish trading flow. Gold usually acts as the bullish side in cross-asset pairing trades. The reason is that gold's investment logic does not rely on any single macro outcome; under various scenarios, gold can still rise." A mere 1 basis point increase in gold asset allocation can leverage a 1.4% impact, as gold sees a recalibration of fund flows. The medium- to long-term structural bullish logic of gold is becoming more robust, although the short-term price trajectory may not be steeper and smoother. The pricing core of this round has shifted from the singular opportunity cost framework of "declining real interest ratesrising gold" to a fiscal credibility framework driven by fiscal credit risk, dilution of dollar purchasing power, diversification of central bank reserves, and private asset reallocations. Typically, gold is pressured when long-end yields rise due to strong economic growth; however, if the rise in yields is due to fiscal deficits, term premiums, and deteriorating sovereign debt credibility, high interest rates and a rising gold market can occur simultaneously. Meanwhile, Yellen's expansion of long-term Treasury buybacks is viewed by the market as a potential "financial repression" signal, reigniting the logic of "currency devaluation trading" driving the long bull theme of gold. However, Walsh's hawkish remarks still resulted in spot gold dropping 2.9% to $4,567.23 in a single day, proving that the traditional mechanism of dollar and real interest rates has not failed but no longer exclusively dictates gold pricing. The "niche market" paradox of gold is one of the most explosive components of this long-term bullish logic: while the total value of yellow metal is over $30 trillion and the average daily trading volume exceeds $300 billion, a large amount of this stock belongs to central bank reserves, jewelry, and long-term holdings, while the huge transactions in the London market mainly come from repeated turnover among banks, market makers, and algorithmic trading, the truly free-floating portion capable of absorbing new long-term funds is far smaller than the nominal market value. According to Goldman Sachs, gold ETFs accounted for only 0.17% of U.S. private financial portfolios in December last year; strictly speaking, for any logical framework where institutions or retail investors' gold asset allocation increases by just 0.01 percentage points, or 1 basis point, the estimated price of gold rises by approximately 1.4%. Another Wall Street financial titan, JPMorgan, illustrates in a scenario analysis for May 2025foreign investors holding about $57 trillion in U.S. assets, if just 0.5%, or about $273.6 billion, turns to gold over four years, equating to about $70 billion annually, the model corresponds to an annualized increase of about 18%, potentially pushing gold prices to $6,000 by early 2029. These projected figures from Wall Street reveal extremely high financial flow elasticity. The structure of demand provides a realistic support for this re-evaluation, rather than just a theoretical assumption: globally, gold ETFs saw net inflows of about $3 billion in July, adding 23 tons, with total holdings rebounding to 4,068 tons, and asset management sizes reaching $530 billion; net purchases of gold by central banks have also rebounded significantly from 57 tons in the first quarter of 2026 to 289 tons in the second quarter, indicating a clear counter-cyclical capacity of official sectors to support prices when they fall. Meanwhile, investors are increasingly using call option spreads, dual-asset digital options, and cross-asset combinations rather than pursuing uncovered bullish options; implied volatility and bullish skew have not returned to the extreme levels of the first quarter. All of this means that the market's bullish conviction is deepening, but price expectations are more restrainedinvestors are willing to retain asymmetric upside exposures while actively limiting premium costs and chasing risks, making this approach more sustainable than the speculative frenzy seen at the beginning of the year. The discussions in the options market about $4,900 to $5,300 are closer to a mid-term trading range, while the $5,000 threshold is likely the core pricing pivot for the next stage. As September approaches, Bank of America presents an "Investment Revelation": stock assets may bleed, while commodities led by gold take over the main allocation line. For some institutional investors, gold has evolved from cyclical interest rate trading to being a strategic insurance against dollar credit; the corrections caused by hawkish shocks are more likely to be stress tests for the bull market rather than merely confirming trend reversals based on a single speech. Amidst a surge in the issuance of credit in relation to AI computing infrastructure and escalating fears of an "AI credit bubble burst," long-term yields for ten years and beyond have risen sharply, suppressing the Nasdaq 100 index. A research report compiled by Bank of America has shown seasonal statistics pointing out that September, typically the second year of a presidential term, is generally disadvantageous for high-risk equity assets like stocks that rely on massive future cash flows, while it favors commodities like crude oil, gold, and silver. Historical data compiled by Bank of America displays that major U.S. stock indices typically perform poorly in September. The Nasdaq 100 index (NDX) exhibits an obvious bearish trend: historically, in the second year's September of the U.S. presidential cycle, the index has fallen for 70% of the time, averaging a return of -0.66%. Similarly, small-cap stocks in the U.S. market, represented by the Russell 2000 index (RTY), also face historical weak performance in this period, with a falling probability of about 64%. The performance of commodities, on the other hand, is more favorable. For instance, Brent crude oil shows strong supportrising approximately 67% of the time in September of the second year of the presidential cycle; the typically volatile silver averages an increase of about 1.73% during this period. Gold, another precious metal, also performs strongly during the same historical period. With the U.S. Treasury's unexpected increase in long-term Treasury buybacks and the growing concern over the timely repayment of the ever-increasing historical debt burden of the U.S. government in global financial markets, Wall Street's bullish sentiment toward gold has become increasingly strong. With Treasury Secretary Yellen advocating for lower long-end yields, reinforcing the weak dollar and currency devaluation trading logic, gold surged sharply, with over $22 billion in record buy orders flooding the gold futures market in the past three weeks, rapidly shifting positions toward congestion. Bridgewater Fund founder Ray Dalio has recently once again warned about the U.S. fiscal situation. He believes that U.S. Treasury Secretary Yellen's announcement to expand long-term Treasury buybacks this week, coupled with the soaring long-term U.S. Treasury yields and Japan reducing its exposure to the U.S. bond market, may indicate that U.S. fiscal policy is nearing a critical turning point. If the debt problem isn't addressed in a timely manner, the U.S. could face a more severe debt crisis in the coming years, and Dalio suggests that investors should increase their holdings of gold. Bank of Americas exclusive "Bull & Bear Indicator" has risen to 9.5, placing it in the "Sell" zone, thus the Bank of America's strategy team led by senior strategist Michael Hartnett, known as Wall Street's most accurate strategist, advocates hedging against dollar credit dilution with gold, going long on commodities and natural resources essential for AI infrastructure, while shorting AI bonds and being vigilant about high-leverage ultra-large cloud vendors, private credit, and cyclical financial assets. The Bank of America strategist team indicates that if long-term yields remain high while the dollar weakens simultaneously, they should reduce exposure to high-leverage AI infrastructure, low-rated data center bonds, and private credit, shifting towards gold, energy, resource stocks, and short-duration high-quality credit.