Gold pulled back from a three-month high on Tuesday as traders positioned ahead of U.S. inflation data and a speech from Federal Reserve Chair Kevin Warsh. The pullback follows a rally driven by the Treasury's plan to expand buybacks of longer-dated debt, which revived the "debasement trade" and renewed demand for gold as a hedge against fiscal and dollar risks.
Spot gold dropped 0.4% to $4,632.87 an ounce at 09:12 ET on Tuesday, while gold futures fell 0.2% to $4,686.86 an ounce. The dip comes after the metal advanced last week to a more than three-month high.
Treasury buyback plan revives the debasement trade
Last week's rally was powered by the U.S. Treasury's plan to at least double buybacks of longer-dated government debt. The announcement revived concerns over fiscal policy, the dollar's purchasing power and the appeal of alternative stores of value.
Bond yields declined, lowering the opportunity cost of holding non-yielding gold, while the dollar weakened, making bullion cheaper for overseas buyers. Treasury Secretary Scott Bessent said he is prepared to expand the buybacks, though he offered no fresh indication of additional action on Monday. He has also said the administration will soon unveil a fiscal initiative aimed at addressing the high cost of government borrowing.
The policy shift has helped revive the so-called debasement trade, which partly drove a sharp rally in gold last year. Investors are increasingly looking at gold as a hedge against the possibility that aggressive fiscal policies and easier financial conditions could soften the dollar's purchasing power over time.
Inflation data and Jackson Hole speech loom
Markets are now looking ahead to Wednesday's release of the Bureau of Economic Analysis' core personal consumption expenditures price index, one of the Fed's preferred inflation gauges. Warsh will then speak Friday at the Fed's annual Jackson Hole event.
Elsewhere, the White House has threatened economic punishment against countries that continue doing business with Iran as part of a campaign to isolate Tehran. At the same time, the U.S.-Canada trade dispute intensified after talks broke down, with Washington imposing 50% tariffs on some Canadian goods and threatening the same rate on Canadian cars, trucks and auto parts from January 2027. Those developments could test gold's role as a portfolio diversifier, as investors weigh fiscal worries, trade tensions, geopolitical risk and uncertainty over monetary policy together.
Tony Sycamore, senior market analyst at IG, said the recent advance leaves little doubt that gold has likely formed a base at the late-June low near $3,942. He added that the metal's rally earlier in August initially reflected optimism over a possible diplomatic breakthrough in the Middle East, which would have lowered oil prices and reduced pressure on central banks to raise interest rates.
Source: Investing.com
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