Gold is maintaining its biggest gain in six months, trading above $4,500 an ounce, following a more than 4% surge the previous day. This rally was triggered by the US Treasury Department's surprise move to increase buybacks of long-dated government debt, specifically securities in the 10-year to 30-year sector, to rein in borrowing costs after yields reached multi-decade highs. This action is seen as providing greater official support for the US Treasury market, potentially leading to easier financial conditions and lowering the opportunity cost of holding gold. The US public debt also surpassed $40 trillion for the first time, having increased by one-third in less than five years.
Despite the recent gains, further increases in gold prices may be constrained by rising energy-led inflation pressure. Oil prices have climbed amidst escalating tensions in the Middle East, fueled by dim prospects for a peace deal between the US and Iran over the Strait of Hormuz and a spat between the United Arab Emirates and Iran. Inflation concerns were also highlighted in the minutes from the US Federal Reserve's July meeting, with several officials indicating a readiness to raise interest rates if inflation does not improve. Higher interest rates typically negatively impact non-yielding bullion.
Spot gold rose 0.1% to $4,520.05 an ounce in Singapore at 7:21 AM, while silver advanced 0.1% to $67.01 an ounce. Platinum and palladium also saw slight increases. The Bloomberg Dollar Spot Index remained largely unchanged after dropping 0.8% in the previous session. The US Treasury's buyback announcement and the subsequent drop in bond yields have given precious metals a "jolt of life," according to TD Securities, with expectations that lower real rates could bring back gold investment flows amid a potential stagflation narrative. Analysts like Robert Gottlieb noted the unexpected and bullish nature of the Treasury's move for gold, anticipating lower yields and a weaker dollar.
