Gold Surges Past $4,600 as Treasury Buyback Plan Backfires

The price of gold has surged past $4,600 an ounce after the US Treasury doubled its buybacks of long-dated government debt. The move was intended to shore up liquidity and reduce refinancing costs, but investors have concluded that the intervention is too small relative to new issuance flooding the market.

Gold's price has increased by 13 percent over the past few weeks, recouping some of the ground lost in a June sell-off. The metal benefits when real yields come under pressure, and its value has added around $160 an ounce since the Treasury's announcement. As a result, the dollar has weakened, with the US Dollar Index sliding to its weakest level since late May.

Central banks worldwide purchased 288.9 tonnes of gold in the second quarter, a 62 percent year-on-year increase and the strongest Q2 showing on record. Poland led the charge, while China accumulated bullion for 21 consecutive months. The breadth of demand is striking, with nearly nine in ten reserve managers expecting global gold reserves to keep rising.

On the supply side, mine production has stagnated at around 3,600 tonnes per year despite higher prices. Mali's industrial gold output rose 30 percent in the first half, but South Africa's output expanded only 6.2 percent in June year-on-year. Analysts point to support near $4,510 and note that overbought conditions may signal short-term pullbacks.