Gold Surges as US Treasury Paves the Way to $4,500
Gold prices spiked sharply during Wednesday's trading (August 19), reaching their highest level since early June after US government bond yields fell following a surprise announcement from the US Treasury Department. Spot gold rose approximately 3.8%, briefly breaching US$4,499 per troy ounce, before trading around US$4,490.94 during the New York session.
Gold's rally was driven by the US Treasury's decision to expand its long-term government debt buyback program. The government plans to at least double the size of repurchase operations for 10- to 30-year Treasuries. This move is viewed as an effort to provide liquidity support while easing pressure on borrowing costs, following a recent surge in long-term yields to multi-decade highs.
The market reaction was immediate in long-term bonds. Prices for 30-year Treasuries rose and yields fell, while the US dollar weakened; the Bloomberg Dollar Spot Index dropped by about 0.8%. The combination of lower yields and a weaker dollar acted as a positive catalyst for gold, reducing the opportunity cost of holding non-interest-bearing assets and making bullion relatively cheaper for buyers using other currencies.
Sentiment toward gold was also bolstered by a resurgence in investor demand and central bank buying, particularly from China. Gold-backed ETFs tracked by Bloomberg recorded an addition of over 257,000 ounces on Tuesday—the largest daily inflow since April. A Bank of America fund manager survey also indicated that a growing number of investors consider gold to be relatively undervalued compared to other assets.
However, gold's path forward is not entirely without obstacles. Dimming prospects for US-Iran peace could keep energy prices high and sustain inflationary risks. Meanwhile, the minutes from the July FOMC meeting revealed that more Fed officials are open to the possibility of interest rate hikes if inflation does not improve. Higher interest rates could once again weigh on gold by increasing the appeal of interest-bearing assets.
Newsmaker Analysis: The surge toward the US$4,500 level indicates that gold's bullish momentum has regained significant strength, driven by successful efforts to suppress US Treasury yields and a sharp decline in the dollar. If the price can sustain itself above the US$4,480–US$4,500 range, the rally could well continue. However, following a single-day gain of over 3%, the risk of profit-taking has also risen. Future direction will be heavily influenced by Treasury yield movements, the dollar's response to buyback policies, and the Federal Reserve's hawkishness following the release of the FOMC minutes.
Source: Newsmaker.id
