Gold Price Surges on US Treasury's Yield-Curve Control Move

The gold price surged to nearly $4,500 per ounce after the US Treasury doubled buybacks of longer-dated Treasuries on August 19. This move, seen as a step towards yield-curve control, has led some analysts to predict that policymakers may opt for this approach over pure quantitative easing.

Senior quantitative analyst Johan Palmberg argues that persistent deficits, reduced buying by foreign central banks, and tighter bank capital rules have forced more duration risk onto hedge funds and other price-sensitive investors. If this dynamic continues, it could lead to weaker real yields, a softer US dollar, and perceived financial repression, all of which would support higher bullion allocations.

The World Gold Council has linked the reduced foreign central-bank buying and tighter bank capital rules to higher duration premia. Historically, yield-curve control has been used in the past, including in the 1940s by the US and more recently in Japan and Australia.