Gold jumps as Treasury buyback plans push yields lower, Fed flags inflation risks

Gold prices increased on Wednesday, driven by a significant drop in U.S. government bond yields following the Treasury Department's plans to double its buyback operations for long-term notes and bonds. Spot gold rose 3.4% to $4,483.43 per ounce, while gold futures gained 2.2% to $4,517.20 an ounce. The Treasury Department emphasized that it was not targeting buyback operations to address episodes of acute market stress, although these actions have been used to bolster bond market liquidity.

Conversely, gold prices fell on Tuesday after the yield on 30-year U.S. Treasuries nearly reached a two-decade high and 10-year yields remained near their highest levels since early 2025. Higher yields could make bonds more attractive, reducing the opportunity cost of holding gold. Additionally, Federal Reserve officials expressed growing concerns about inflation during their July meeting, with several policymakers ready to raise interest rates promptly if inflation does not fall to the central bank's 2% target.

Fed officials argued for a more restrictive policy stance to meet its goals of price stability and maximum employment. The Fed decided to maintain its benchmark interest rate in the 3.50%-3.75% range at the July meeting, with three officials dissenting and supporting a quarter-percentage point increase. Oil prices have surged due to the ongoing Middle East conflict, adding pressure to the yellow metal.

Higher energy costs directly impact inflation, which could make the Fed more hesitant to lower borrowing costs or increase the likelihood of higher rates persisting. Oil and liquefied natural gas flows through the Strait of Hormuz, a critical waterway for global oil and natural gas exports. The Iran war, which began in late February, has created uncertainty about the future management of the Strait of Hormuz, posing a significant risk to energy prices and inflation.

U.S. President Donald Trump confirmed that no talks were underway with Iran, leaving the Strait's future uncertain. The June ceasefire deal between Washington and Tehran has also expired without a plan for an extension. Meanwhile, the U.S. dollar index, which measures the greenback's strength against a basket of global currencies, fell by 0.6% to 99.02. A weaker dollar can make gold more affordable for international buyers, further boosting its value.