20.08.202609:56 Forex Analysis & Reviews: Gold Soars 3.8% to $4,499 — Highest Since Early June

Gold rose 3.6 percent to $4,490.94 per ounce, briefly gaining up to 3.8 percent and exceeding $4,499, the highest since June 4. Silver increased by 4 percent, with platinum and palladium also rising.

The catalyst for the rally was the unexpected decision by the US Treasury to increase the buyback of long-term government debt. Just two weeks after publishing the planned buyback schedule for this quarter, the department announced that it would at least double the size of buyback operations to support liquidity for securities in the ten- to thirty-year segment. This signaled that the US wants to lower borrowing costs after yields reached multi-decade highs. The rally in 30-year bonds pushed yields down, and the dollar weakened, providing strong support for the metal.

However, it's important to understand that while the increase in the Treasury buybacks is negligible relative to the federal debt of about $40 trillion, the move itself signals greater official support for the Treasury market and ultimately a loosening of financial conditions, and such a combination is bullish for gold.

Gold also benefits from potential pressure on the dollar. Precious metals traders are likely to pay closer attention to subsequent measures aimed at supporting the Treasury market, and the more such moves are perceived as distorting pricing in the debt market, the greater the potential for dollar weakening, which in turn supports gold. In other words, each new Treasury intervention will work for the metal through the currency channel.

Nevertheless, two factors may limit further growth. Waning prospects for a peaceful deal between the US and Iran could keep energy prices elevated, sustaining inflationary pressure. Additionally, the minutes from the July Federal Reserve meeting, released on Wednesday, showed that more FOMC members advocated for a rate hike last month than the three who formally voted against it, while others indicated they might support tightening if inflation does not start to improve. Higher rates are traditionally negative for non-yielding metals.

Regarding the current technical picture of gold, buyers need to reclaim the nearest resistance at $4,546. This would allow them to aim for $4,607, above which a breakthrough will be quite challenging. The farthest target will be around $4,656. Should gold fall, bears will attempt to take control of $4,481. If successful, breaking through this range will deal a serious blow to the bulls' positions and push gold to a low of $4,432 with a prospect of reaching $4,372.