Gold Prices Steady Near Two-Month High as US Treasury Moves Boost Macro Tailwind
The price of gold has steadied near its two-month high following a surprise move by the US Treasury. The Treasury expanded purchases of longer-dated debt, reducing bond yields and the dollar's value in the process.
Spot gold traded at around $4,512 an ounce on Thursday morning after reaching $4,525.79, its highest level since June 2. This surge comes after a 4% increase in gold prices on Wednesday.
The Treasury's announcement lifted the maximum size of liquidity-support buybacks for 10- to 30-year securities from $2 billion to at least $4 billion per operation between September 9 and November 4.
As a result, the 30-year Treasury yield retreated towards 5.2%, while the 10-year yield also decreased. The dollar weakened against several major currencies, both of which are supportive factors for gold as they reduce its relative appeal compared to interest-bearing US assets and make it cheaper for overseas buyers.
However, the programme's impact is considered modest in the short term, with longer-term borrowing costs still dependent on the government addressing its fiscal position. The Treasury market is roughly $31 trillion, and the increase in debt held by the public has now surpassed $40 trillion, reaching approximately $40.05 trillion.
Gold has increasingly been seen as a hedge against inflation and concerns over sovereign debt and currency credibility. OCBC strategist Christopher Wong expects the advance to be uneven after Wednesday's powerful move, suggesting that the Treasury action provides support without removing the risks facing bullion.