Gold Surges to $4,650 as Monetary Factors Trump Physical Demand

Gold prices have surged to their highest level since mid-May, reaching $4,650 an ounce after clearing the $4,605 resistance area. This rally has been driven by monetary factors rather than physical demand.

The catalyst for this move was the US Treasury's announcement on August 19th that it would double its long-term bond buyback operations from September 9th to November 4th. This decision effectively shifts more government borrowing towards short-term bills, which has led markets to question the purchasing power of the reserve currency.

Gold has gained nearly 14% in August alone, and this rally is not dependent on jewellery or retail flows. Physical demand for gold has been weak, with global gold demand in the second quarter falling to 942 tonnes, its lowest level since the third quarter of 2021.