Gold held onto its biggest gains in six months after the US Treasury took a surprise step to rein in long-term borrowing costs.
Gold traded above $4,500 per ounce during Thursday’s Asian session (August 20), following a surge of over 4% the previous day. The Treasury unexpectedly announced an increase in buybacks of long-term government debt, signaling a desire to lower borrowing costs after yields hit multi-decade highs.
The department stated it was “at least doubling the scale of buyback operations for liquidity support” regarding securities with maturities of 10 to 30 years. Hours later, it was announced that total US public debt had surpassed $40 trillion for the first time—a figure that has surged by a third in less than five years. This move signals greater official support for the US government bond market and potentially looser financial conditions, which in turn lowers the opportunity cost of holding gold.
However, further gains for the precious metal may be capped by energy-driven inflationary pressures. Oil prices maintained their gains amid a bleak outlook for a peace deal between the US and Iran regarding the Strait of Hormuz, as well as Middle East tensions exacerbated by a dispute between the United Arab Emirates and Iran.
According to central bank meeting minutes released on Wednesday, more Federal Reserve officials supported a US interest rate hike last month than the three who officially dissented; meanwhile, other officials signaled the possibility of further rate hikes if inflation conditions do not improve. Higher interest rates typically have a negative impact on gold, which does not yield interest. Spot gold prices rose 0.1% to $4,520.05 per ounce at 7:21 a.m. Singapore time. Silver prices strengthened 0.1% to $67.01 per ounce. Platinum and palladium also posted slight gains. The Bloomberg Dollar Spot Index, which measures the performance of the US currency, remained little changed after ending the previous session with a 0.8% decline.
Source: Newsmaker.id