Gold drifts higher above $4,500 on US Treasury buyback

Gold prices reached a new high above $4,500 per troy ounce on Friday, driven by the US Treasury's plan to buy back longer-dated bonds. This move was made to counteract rising borrowing costs and signal to the market that current yields do not fully represent underlying economic fundamentals. US Treasury Secretary Scott Bessent confirmed that bond buybacks could extend beyond the initial $4 billion, emphasizing that interest rates are not a factor in the decision.

Market analysts suggest that despite gold's historical role as an inflation hedge, recent economic pressures like energy-driven inflation may limit the metal's upside potential. The Federal Reserve's potential rate hikes in the coming months further dampen the appeal of gold, as it provides no interest yield. Technical indicators, however, point to a bullish near-term outlook for gold, with its price holding above the 100-day simple moving average and nearing the upper Bollinger band.

Central banks continue to keep gold as a significant portion of their reserves, viewing it as a safe-haven asset to bolster their currencies during turbulent times. In 2022, central banks added a record 1,136 tonnes of gold, further highlighting its importance in global finance. As the US Dollar remains a major factor influencing gold prices, investors will closely watch developments in the US economy and dollar strength.