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Gold climbs above $4,500 as US Dollar, yields fall

  • Gold price jumps to near $4,520, hitting a two-month high in Thursday’s early Asian session. 
  • The Treasury said it’s ramping up a buyback program for longer-dated securities.
  • Fed Minutes indicated they would need to raise rates soon unless there was more progress on bringing down inflation. 

Gold price (XAU/USD) rises to around $4,520 during the early Asian session on Thursday. The precious metal surges to the highest since early June amid the weakening US Dollar (USD) after the US Treasury Department stepped in to provide relief to bond markets.

The Treasury Department is ramping up a buyback program for longer-dated securities to rein-in long-term borrowing costs from multi-year highs. The department announced that it would at least double the maximum size of its liquidity-support buyback operations for longer-dated nominal securities. The current maximum size of $2 billion per operation will be at least $4 billion per operation. 

TD Securities said the Treasury's announcement gave metals a "jolt of life," saying gold investment could "quickly return amid Treasury liquidity support, a Fed willing to look through an energy shock, and a growing stagflation narrative, which should all ultimately see lower real rates.”

The Federal Reserve's (Fed) latest July meeting minutes indicated many policymakers saw rate hikes likely if inflation did not decline. The Fed decided to keep the Federal Funds Rate targeted in a range between 3.5%-3.75% last month, with dissenters focusing on the need for action soon to return inflation to target.

Nonetheless, traders are largely looking through this due to rising stagflation fears and an energy shock narrative, driving money back into gold as a safe-haven. 

Gold upside seen as US Treasury support points to lower real rates

According to TD Securities, the recent moderation in the “fierce bid” for Gold may prove temporary, with the bank arguing that “the flows could quickly return amid Treasury liquidity support, a Fed willing to look through an energy shock, and a growing stagflation narrative, which should all ultimately see lower real rates.” In their view, this combination of renewed US Treasury buybacks, a tolerant Fed stance on energy-driven price pressures, and rising stagflation concerns reinforces the case for renewed upside in precious metals.

Chart Analysis XAU/USD

Technical Analysis: Gold resumes its uptrend in the near term

In the daily chart, XAU/USD retains a bullish near-term bias as price holds well above the 20-period Bollinger simple moving average and the 100-day simple moving average (SMA), keeping the broader uptrend intact. Price is approaching the upper Bollinger band, while the Relative Strength Index (14) around 67 points to overbought conditions that could temper immediate upside, even as momentum still favors buyers.

On the topside, initial resistance is located at the upper Bollinger band near $4,550, where a clear daily close above would open the way to fresh record territory. On the downside, immediate support is seen at the 100-day SMA around $4,380, followed by the mid-Bollinger band at $4,225, with the lower Bollinger band at $3,905, marking a more distant structural floor in the event of a deeper corrective pullback.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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