Gold Soars as US Treasury Doubles Bond Buybacks

The price of gold has been on the rise in recent weeks, sparked by a combination of factors including central bank buying and a weaker dollar. Despite its volatile year, gold appears to be getting back on track after falling sharply in the spring and summer due to fears that central banks would raise interest rates.

The US Treasury's decision to double its long-end bond buybacks has left gold caught between two opposing forces, with concerns over US debt and fiscal credibility supporting the price of gold, while a potential Federal Reserve rate hike tends to hurt it. According to Russ Mould, investment director at AJ Bell, 'Gold tends to do best when markets fear policy error or sense that central banks are not in control.'

Markets are eagerly anticipating Federal Reserve chair Kevin Warsh's Jackson Hole speech on August 28th, which will provide insight into the Fed's hawkish stance ahead of the September meeting. Meanwhile, some fund managers believe gold could be one of the main beneficiaries if the US Treasury leans against market expectations by absorbing duration risk.

For those looking to diversify their portfolios during periods of heightened concern over fiscal credibility and monetary conditions, gold may be an attractive option. However, as investment director Russ Mould notes, physical gold comes with an opportunity cost, especially with current interest rates and bond yields.