Treasury Buyback Plan Sparks Gold Rally to Two-Month High

Gold prices surged to their highest levels since early June after the U.S. Treasury Department's announcement that they would double their buybacks of long-dated T-bills.

The move sparked a rally in gold, pushing prices above $4,600/oz on August 21. This mirrors an earlier rally in August where gold prices rose around 7%, after being stuck in a tight range near $4,000/oz for the whole of July.

The Treasury's buyback plan lowered long yields, with the 10-year and 30-year yields dropping by 6 bps and almost 10 bps respectively. This reduction in bond yields made government bonds less attractive, while a weaker dollar provided additional support to gold.

However, the analysts at Heraeus noted that the immediate reaction appears to have reflected the signal from the Treasury as much as the additional purchases themselves. They warned that if long-term yields rise back significantly, the support to gold could be temporary.