"Debasement Trade" Resurges; Gold in High Demand
Gold prices strengthened again during Thursday's trading (August 20), hovering around US$4,530 per troy ounce; this sustained the sharp rally from the previous session and kept the metal at its highest level since June. Gold's gains continue to be supported by a weakening US dollar and falling Treasury yields following increased US government intervention in the bond market.
The US Treasury Department is at least doubling its government debt buyback program for the upcoming fiscal quarter. This move represents Washington's latest effort to curb the surge in long-term bond yields after US borrowing costs rose sharply in recent weeks.
Upward pressure on yields had previously prompted Treasury Secretary Scott Bessent to call for an expansion of the Federal Reserve's FIMA facility capacity. If long-term borrowing costs can be suppressed, the relative appeal of bonds compared to gold diminishes, given that gold pays no interest or coupons to holders.
The Treasury's policy has also reignited the "debasement trade" narrative, where investors seek assets like gold as a hedge against the risk of a decline in the dollar's purchasing power. Concerns have arisen because the US government is expected to face substantial spending and deficit-financing needs while simultaneously attempting to contain borrowing costs.
The combination of a high fiscal deficit, rising government debt, a weakening dollar, and efforts to suppress yields has increasingly positioned gold as a hedge against currency devaluation risks. These conditions have helped gold maintain its momentum, even after recording sharp price increases in recent sessions.
Newsmaker Analysis: Gold's momentum remains bullish as long as Treasury yields continue to fall and the US dollar remains under pressure. Prices holding around US$4,530 indicate that buyers remain strong following the earlier breakout. However, following a major rally, the risk of profit-taking warrants caution. If debasement trade sentiment strengthens further and yields do not spike again, gold has the potential to sustain its upward trend toward higher levels. (arl)
Source: Newsmaker.id
