Gold breaks records as markets split between Fed-fuelled optimism and bond market warnings

The broader tape has rarely looked more confused. Gold just smashed through its long-standing inflation-adjusted peak from 1980, surging past $3,600 in a clean breakout that speaks to doubts about policy credibility. At the same time, equities are powering to fresh records while bonds scream slowdown, leaving traders caught between two competing narratives.

Stocks are following the oldest rule in the book: rate cuts are good for risk. After stumbling on weak jobs data, the S&P 500 quickly found its footing, while the Nasdaq set another record close at 21,798.70. The Dow added 114 points. Gains were led by AI-linked leaders like Broadcom (+3%), Nvidia (+1%), and steady moves higher in Amazon and Microsoft. Importantly, it’s not just the Magnificent Seven—breadth is widening, with average tech names catching a bid. Investors are betting that an easier policy will underwrite a new earnings cycle.

Bonds, however, are focused on the cracks in the labour market. Two-year yields have dropped to their lowest levels since 2022, with traders now pricing close to three cuts by year-end, starting in September. Tomorrow’s payroll revisions and the coming PPI and CPI will dictate the pace, but the bond market has already moved. Inflation swaps show forward expectations dipping, a signal that soft labour is offsetting tariff-driven inflation risks.

The real question is whether a benign CPI could give Powell & Co. cover to spring a surprise: a half-point cut that would signal the central bank wants to get ahead of the slowdown rather than chase it. Weak labour data and falling yields already have the bond market screaming for urgency. A softer inflation number would hand the Fed political and economic room to act decisively.

Options markets are prepared for only a 0.7% stock market move in either direction—low compared to the past year—indicating investors are heavily positioned for rate cuts and expect the Fed to look through tariff inflation risk as a temporary VAT-style tax hit.

This kind of cross-asset divergence — stocks rising alongside bonds — isn’t unprecedented, but the contrast in what each market is pricing could hardly be sharper. Fixed income is glued to the here and now: slowing payroll growth, looming downward revisions, and a softer hiring backdrop that all but guarantees Fed action. Equities, by contrast, are already looking over the valley. They see the promise of a policy backstop, easier financial conditions, and the early stirrings of a new earnings cycle. Both lenses can be “right,” depending on the horizon you trade on, but the divergence is real: bonds are warning about present fragility, while stocks are front-running tomorrow’s recovery.

Traders are drawing clear battle lines. Some see scope for aggressive cuts running into early 2026, with S&P targets stretching toward 7,000. Others warn that sticky inflation could cap the Fed’s flexibility, forcing a slower pace. Either way, the dollar has weakened to its lowest close since July, steepening odds of a broader rotation into gold, commodities, and credit.

And then there’s gold—the cleanest expression of market doubt. Its record-setting run suggests investors aren’t entirely buying the Fed’s ability to cut aggressively without losing control of prices. It’s functioning as insurance against both stagflation and over-easing. The breakout is confirmation that traders aren’t just hedging—they’re actively reallocating.

So the market is split. Bonds are hedging downside risk, stocks are pricing upside recovery, and gold has emerged as the arbiter of distrust. The coming days will decide whether this divergence resolves in a soft-landing rally or fractures into stagflation fear. Until then, the only certainty is that the Fed’s hand has been forced, and traders are positioned shoulder-to-shoulder for easing—even as the signals across markets refuse to line up.