Gold set three-month highs on Friday and headed for weekly gains above 5%, driven by a weaker dollar as a Treasury debt-buyback plan and a bond sell-off pushed investors toward hard assets. Spot gold traded near $4,617 an ounce, while analysts flagged next week's Jackson Hole symposium as the next catalyst for interest-rate expectations.
Gold sat at three-month highs on Friday and was on track for weekly gains of more than 5%, lifted by a slide in the U.S. dollar during a prolonged sell-off in longer-dated Treasury bonds. Spot gold gained 2.1% to $4,617.23 an ounce, while gold futures climbed 2.2% to $4,673.84 an ounce. For the week, spot gold advanced 5.6% and futures rose 5.4%.
Bond sell-off drove the move
Longer-term Treasury bonds had been caught in a sell-off roughly since the Federal Reserve's July rate decision, driven by inflation jitters tied to rising oil prices and concerns over the debt companies are issuing to fund artificial-intelligence infrastructure. The 30-year yield hit a 19-year high of 5.337% on Tuesday, while the 10-year yield touched a fresh 52-week high of 4.748%. Shorter maturities fared better, helped by economic data that reduced expectations of imminent Fed rate hikes.
Then, on Wednesday, the U.S. Treasury said it would increase repurchases of long-dated government debt to at least $4 billion from $2 billion. The surprise move sparked a rally in long bonds that sent yields sliding, but much of that advance was wiped out on Thursday and Friday as traders read it as only a short-term fix.
News that U.S. debt had crossed $40 trillion added to the fiscal worries. By Friday, the 30-year yield was up 3.5 basis points to 5.272%, while the 10-year yield rose 3.7 basis points to 4.735%.
Debasement trade favors gold
Treasury Secretary Scott Bessent tried to add relief on Thursday, telling CNBC the buybacks could exceed the $4 billion announced and touting a toolkit to bring down yields. Rising bond yields tend to act like rate hikes, since they raise borrowing costs for consumers and businesses and generally weigh on non-yielding assets such as gold. But Washington's growing debt has stirred fiscal skepticism, pushing investors to move capital out of fiat currencies and into hard assets such as gold or cryptocurrency, a strategy known as the debasement trade.
According to Interactive Brokers senior economist José Torres: "The Treasury's debt buyback announcement has suffered from bad timing", as the resulting drop in yields was offset by mounting geopolitical tensions and strong economic data. He added that Bessent has another chance to ease pressure on rates with Monday's press conference on financial sanctions on Iran and further plans to curb borrowing costs. Torres also said Wall Street has so far judged Washington's steps as insufficient, though more measures — including a possible Fed quantitative-easing program — could follow.
The market's next focus is the Jackson Hole Economic Policy Symposium next week for further cues on interest rate direction.
Source: Investing.com
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