Gold prices are maintaining levels above $4,500 an ounce, following a more than 4% surge the previous day, which marked its biggest gain in six months. This rise comes after the US Treasury Department unexpectedly announced it would double the size of its buyback operations for long-dated government debt, specifically targeting securities in the 10-year to 30-year sector. This move aims to rein in long-term borrowing costs, which had reached multi-decade highs, and signals greater official support for the Treasury market, potentially leading to easier financial conditions.
The Treasury's decision to increase liquidity support through these buybacks coincided with the disclosure that US public debt had surpassed $40 trillion for the first time, having increased by a third in less than five years. Lower borrowing costs generally reduce the opportunity cost of holding non-yielding gold. However, potential further gains in gold could be tempered by energy-led inflation pressures, as oil prices remain elevated due to dim prospects for a peace deal between the US and Iran over the Strait of Hormuz, and increased tensions in the Middle East.
Despite the Treasury's efforts to lower long-term yields, minutes from the Federal Reserve's July meeting, released on August 19, indicated that more officials supported raising US interest rates than the three who formally dissented. Other Fed officials suggested they might back a hike if inflation does not improve. Higher interest rates typically exert downward pressure on gold prices. At 7:21 AM in Singapore, spot gold saw a slight increase of 0.1% to $4,520.05 an ounce, while silver advanced 0.1% to $67.01 an ounce. Platinum and palladium also registered minor gains, and the Bloomberg Dollar Spot Index remained largely unchanged after a 0.8% decline in the previous session.
