Movements in the price of gold have grown more nuanced since the outbreak of war with Iran in late February. Since then, gold has become more reactive to the variables that traditionally have influenced its price over the short term. Factors such as economic activity and inflation, the direction of real interest rates, geopolitical risk and fiscal dynamics had a push-pull effect throughout the third quarter.¹

It remains to be seen whether we have entered a prolonged hiking cycle or if this hike represented a one-off that will be followed by more “data-dependent” decisions moving forward. While we view additional rate hikes as possible, the deliberate lack of formal Federal Reserve guidance under Chairman Warsh’s regime makes policy trajectory difficult to assess.

With or without another Fed move, however, the fourth quarter figures to be an eventful one. Not least of the new variables to digest is the November election in the US that will decide the balance of Congress and potentially provide some insight into the trajectory of trade policy, domestic spending and the Iran war.

We believe that these mounting risks highlight the importance of a strategic long-term allocation to gold as a potential hedge in diversified portfolios.

September’s sharp rise in interest rates weighed on fixed income markets, with longer-duration sectors bearing the brunt of the selloff even as higher yields improved the income outlook for investors. Shifting economic and inflation data continued to reshape fixed income conditions.

Treasury and rates. Treasury yields rose sharply in September, with the two-year yield climbing 55 basis points, the 10-year yield rising 54 basis points and the 30-year yield increasing 39 basis points. Stronger economic data, persistent inflation concerns, elevated energy prices, heavy Treasury and corporate issuance, fiscal uncertainty and the Federal Reserve’s first rate increase since summer 2023 contributed to the move. Longer-term Treasury yields reached levels not seen since before the financial crisis.¹

Corporate credit. Investment grade corporate spreads widened modestly but remained near historically tight levels. The Bloomberg US Corporate Index returned -2.72% in September as higher Treasury yields pressured prices, while yield to worst increased to 6.04%. Longer-duration securities generally fared worse. September investment grade corporate issuance reached $197 billion, 33% above the four-year September average, while high yield issuance rose to a 12-month high.^1,2

Securitized. Duration also drove performance across securitized markets. Shorter-duration asset-backed securities held up comparatively well, returning -0.96%, while agency residential mortgage-backed securities fell 3.38% and spreads widened materially. Commercial mortgage-backed securities spreads moved slightly wider. Issuance remained strong: year-to-date asset-backed securities issuance reached $284 billion, non-agency commercial mortgage-backed securities supply reached $133 billion and single asset/single borrower issuance climbed to $75 billion. Non-agency residential mortgage-backed securities issuance slowed but remained on pace to exceed prior-year levels.^1,3