Gold climbed $65 to $4,668, its highest level since May 17, as the US steps back from its strong-dollar stance and the Treasury struggles to control bond yields. Rumors that the Treasury has threatened allies against selling Treasuries are adding to the case for central banks to diversify into gold.
Gold rose $65 to $4,668, marking its third large gain in four trading days and its highest level since May 17. The metal is now up more than $600 since the start of the month. That is a 15% rally that suggests central banks are buying or being front-run by the market.
Dollar policy shift drives the bid
The US is effectively abandoning its strong-dollar policy by pursuing intervention in the yen. At the same time, the Treasury is attempting to intervene in the bond market to push yields lower. That effort partly backfired last week, as yields climbed back up despite an Operation Twist-type move.
A new report says the Treasury may tap its cash account to fund buybacks, letting it purchase long-dated debt without issuing more bills. Buybacks are normally meant to be neutral, but this approach would edge toward debt monetization. The move is having some effect today, with 10-year yields down 3.8 basis points to 4.70%.
Allies reportedly warned against selling Treasuries
Rumors are also circulating that the Treasury has threatened allies who considered selling their Treasury holdings. Japan was reportedly close to selling bonds to fund intervention before Bessent stepped in. There is also talk that Saudi Arabia threatened to sell dollar bonds if the US escalated its involvement in Iran.
Even the rumors pose a problem for Washington: if allies fear they won't be allowed to sell Treasuries when they need cash most, the optimal response is to diversify into gold instead, at the margin or en masse.
Iran war remains a wild card
The ongoing Iran war is itself a reason to doubt dollar dominance, but the risk of a runaway jump in oil prices could push some countries to sell gold or Treasury reserves to pay for oil imports or stabilize their currencies. Turkey, a large gold holder, sold reserves early in the war.
Source: Investinglive
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