Gold Holds Firm in Positive Territory After Treasury Buyback Pushes Down US Yields
Gold prices held steady around US$4,500 per troy ounce during Thursday's trading (August 20), following a surge of over 4% the previous day—marking its largest daily gain in six months. This rally occurred after the US Treasury Department unexpectedly expanded its long-term government bond buyback program to help curb a spike in borrowing costs.
The US Treasury announced it would at least double the size of buyback operations for 10- to 30-year bonds. This move followed a surge in long-term Treasury yields to multi-decade highs. Lower yields reduce the opportunity cost of holding gold—since the precious metal pays no interest—thereby boosting the appeal of bullion.
At the same time, the US government revealed that the nation's total public debt had surpassed US$40 trillion for the first time. While the buyback policy provides additional support to the Treasury market and could potentially ease financial conditions, market participants remain skeptical about whether the decline in yields can be sustained in the long run.
Christopher Wong, a strategist at Oversea-Chinese Banking Corp, believes that gold's movement following the sharp rally is unlikely to follow a straight line. He suggests that more sustainable gains will depend heavily on Treasury yields continuing to fall and on increased capital inflows into gold-backed ETFs.
On the other hand, inflationary pressure from the energy sector remains a risk for gold. Oil prices remain high as the outlook for an agreement between Washington and Tehran regarding the Strait of Hormuz remains unclear. Tensions between Iran and the United Arab Emirates are also adding to geopolitical risks in the Middle East. If energy prices continue to rise, inflationary pressure could intensify, potentially driving expectations for a tighter monetary policy stance from the Federal Reserve.
Minutes from the July FOMC meeting revealed that a greater number of Federal Reserve officials supported an interest rate hike than the three members who formally dissented. Several other officials also signaled openness to raising rates if inflation fails to show improvement. In Asian trading, spot gold fell approximately 0.5% to US$4,491.75 per troy ounce, while silver remained relatively stable at US$67.01. Despite the slight pullback, gold held near the US$4,500 level, with its next move heavily dependent on Treasury yields, the US dollar, and Federal Reserve policy.(asd)*
Source: Newsmaker.id
