Gold is poised for a third straight weekly gain, with spot gold holding steady at $4,514.23 an ounce as of 0031 GMT on Friday, after touching its highest level since early June in the previous session. Prices were up 3.2% for the week. U.S. gold futures settled at $4,571.20. This surge is largely attributed to the U.S. Treasury Department's move to increase buybacks of long-dated government debt, which has weakened the dollar and lowered U.S. Treasury yields.
The U.S. Treasury announced it would double the size of buybacks on longer-dated securities over the next quarter to at least $4 billion per operation. Treasury Secretary Scott Bessent indicated he might further increase these repurchases. This action is seen as an attempt to manage long-term borrowing costs and provide liquidity in longer-dated nominal sectors. Following this, 30-year Treasury yields fell as much as 10 basis points to 5.18%, and 10-year yields dropped six basis points to 4.65%, while short-term yields rose.
This unexpected intervention by the Treasury has renewed fears of currency debasement, with some investors seeing it as a form of "soft-form financial repression" to prevent yields from reaching market-clearing levels. The dollar has fallen to its weakest in three months, making dollar-priced commodities like gold more attractive to holders of other currencies. Gold's rally has been significant, adding $185.50 to $4,518.90 on the Kitco spot chart, touching $4,524.50. Saxo Bank's Ole Hansen noted $4,500 as a key level, with a potential path towards $5,000 before year-end if conditions like an end to the Iran conflict and cooler inflation prevail.
Despite the gold rally, concerns remain. Two Federal Reserve officials expressed caution regarding the impact of the Treasury's debt management changes on monetary policy. Markets are currently pricing in a 64% chance that the Fed will keep interest rates unchanged in September and a 36% chance of a hike, according to the CME FedWatch Tool. While gold is traditionally a hedge against inflation and turmoil, higher interest rates typically weigh on its appeal as a non-yielding asset. However, the current situation, where the Treasury is actively trying to lower long-term yields, seems to be overriding these concerns for now.
