Gold maintained its largest gain in six months, trading above $4,500 an ounce, following the US Treasury Department's unexpected decision to increase buybacks of long-dated government debt. This move aims to lower borrowing costs after yields reached multi-decade highs. The Treasury announced it would at least double the size of its liquidity support buyback operations for securities ranging from 10-year to 30-year maturities. This action coincided with the disclosure that total US public debt had exceeded $40 trillion for the first time, marking a one-third increase in less than five years.
The Treasury's intervention signals increased official support for the Treasury market, potentially leading to easier financial conditions. These conditions decrease the opportunity cost of holding gold, making it a more attractive asset. Spot gold rose by 0.1% to $4,520.05 an ounce, and silver advanced by 0.1% to $67.01 an ounce. Platinum and palladium also saw slight increases. The Bloomberg Dollar Spot Index remained largely unchanged after a 0.8% drop in the previous session.
However, potential further gains for gold may be limited by energy-led inflation pressures. Oil prices rose due to ongoing tensions in the Middle East, including dim prospects for a peace deal between the US and Iran over the Strait of Hormuz and a dispute between the United Arab Emirates and Iran. Additionally, minutes from the Federal Reserve's July meeting revealed that more officials supported raising US interest rates than the three who formally dissented, with others open to a hike if inflation does not improve. Higher interest rates typically have a negative impact on bullion, which does not yield interest.
