Gold Surges to Three-Month High as US Fiscal Policy Concerns Mount

Gold prices have been rising for three consecutive weeks, driven by concerns over US fiscal policy and a weaker dollar. The precious metal has reached its highest level since early June, trading near $4,540 an ounce in Asian hours.

The latest leg higher began after the US Treasury announced it would at least double the maximum size of liquidity-support buybacks for 10- to 30-year securities from $2 billion to at least $4 billion per operation starting September 9. This move initially drove long-dated yields sharply lower and weakened the dollar, although much of the bond-market relief has since faded.

Despite Treasury yields rebounding from their midweek lows, concerns over US fiscal policy persist, with gross federal debt having moved above $40 trillion. Council on Foreign Relations senior fellow Rebecca Patterson sees efforts to restrain long-term yields as unlikely to have a durable effect without broader policy changes or a meaningful slowdown in the economy.

Gold's rally still faces an important constraint from Fed policy, which remains the main ceiling for the precious metal. The Federal Reserve has been discussing further tightening if price pressures fail to move convincingly towards the 2% target, and futures markets still favor no change at the Fed's September meeting.