Gold dropped 0.8% to $4,487.41 an ounce on Thursday as traders locked in profits from a rally that had pushed the metal to its highest level since June 2. The pullback followed a surprise U.S. Treasury move to expand debt-buyback operations, which drove bond yields and the dollar lower a day earlier.
The metal had surged more than 4% on Wednesday, after the Treasury Department's announcement. Gold futures held broadly unchanged at $4,544.56 an ounce even as spot prices retreated.
Treasury buybacks drove the rally
The prior day's surge began after the Treasury announced it would double the size of some liquidity-support operations tied to longer-dated government debt. Analysts at Yardeni Research said: "he will do whatever it takes to keep a lid on bond yields".
The added demand pushed long-dated Treasury yields lower, cutting the opportunity cost of holding non-yielding assets like gold. At the same time, the U.S. dollar hovered near a three-month low, which makes dollar-priced metals cheaper for overseas buyers.
Debt and inflation concerns linger
Total U.S. debt has topped $40 trillion for the first time, the Treasury Department said, fueling warnings that spending on social programs and interest costs is outpacing revenue. Minutes from the Federal Reserve's latest meeting showed inflation remains a significant worry among policymakers. Many officials were prepared to raise rates if inflation fails to ease to the central bank's 2% target.
Markets are nevertheless pricing a one-in-three chance of a rate hike at the Fed's September meeting, according to CME FedWatch. Investors instead expect the central bank to hold borrowing costs steady, as it did in July.
Source: Investing.com
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