Market Enters Extreme Greed Mode: Dumping Bonds for Gold and Stocks

Recent developments in the financial markets continue to fuel investors risk appetite through both sector-specific and policy-driven optimism. Safe-haven assets like gold and risk assets such as equities are now moving in tandem — a rare alignment that signals the market may be entering a phase of euphoria. Meanwhile, long-term government bond yields remain relatively undervalued, reflecting a stretched sentiment environment.

1. Post-Election Surge in Japan: Nikkei Soars, Long-Term JGBs Plunge

Following Sanae Takaichi‘s victory in Japan’s Liberal Democratic Party leadership election, the Nikkei 225 surged in celebration of a potential revival of “Abenomics.” In contrast, Japans 30-year government bond prices tumbled sharply as investors continued to sell off debt, pushing yields to a record high of 3.329%. The yen weakened past the 150 level against the U.S. dollar.

(Chart 1: Japan 30-Year Government Bond Yield; Source: CNBC)

From a second-order perspective, Japan now faces mounting pressure from rising government funding costs. Any large-scale fiscal stimulus plan will depend on the stability of Japans debt-to-GDP ratio. In the short term, continued monetary easing could support equities, but medium-term fiscal risks remain a concern — with potential ripple effects across global bond markets.

What remains uncertain is whether a renewed carry trade cycle will re-emerge as capital flows adjust.

2. Investors Rotate from Bonds into Gold and Equities

Equities are being driven primarily by the AI investment theme, with fundamentals reflecting expectations that the four major U.S. cloud service providers (CSPs) will ramp up ASIC chip shipments in 2026. Continued double-digit growth in AI server capital expenditures supports extended high valuations for risk assets.

Meanwhile, gold has surged close to the historic $4,000 per ounce level — not due to inflation or Fed rate cuts, but largely from capital rotation out of bonds.

From a correlation standpoint, the Feds Summary of Economic Projections (SEP) suggests a single rate cut next year to manage inflation expectations. This implies that short-term rates will fall faster than long-term yields, steepening the yield curve. Markets have largely bought into this narrative, intensifying the shift from bonds into equities and gold.

However, we view this as a transitional phase of market distortion, and remain cautious on the sustainability of the rallies in both gold and stocks.

When markets enter an overheated, dopamine-driven state, investors often overlook risks in pursuit of quick gains. Under such conditions, rotating into bonds — though less exciting — could prove the more prudent and stable choice.

Gold Technical Analysis

From a technical perspective, gold prices have reached the upper boundary of their trading channel, suggesting profit-taking opportunities for long positions.

• Aggressive traders may consider short-term sell setups to capture mean reversion opportunities.

• Conservative traders should wait for clearer signs of trend reversal before entering new short positions.

• As gold prices climb to record highs, bullish sentiment should be tempered with caution.

• Stop-loss: $15

• Support: $3,897

• Resistance: $3,820

Risk Disclaimer: The above views, analyses, and price data are for general market commentary only and do not represent the position of this platform. Readers should exercise independent judgment and trade responsibly.c