Gold pulls back as US yields recover after Treasury buyback

Gold prices declined by nearly 0.33% on Thursday as US Treasury yields improved, putting downward pressure on the precious metal. The XAU/USD pair traded at $4,509, down from a daily high of $4,540. Despite the dollar's rise, the yellow metal maintained a bullish outlook. The US Dollar Index (DXY) climbed 0.14% to 98.91, further weakening XAU.

On Wednesday, the Treasury Department announced a revised bond buyback strategy, targeting the long end of the tenor spectrum, between 10- and 30-year bonds, to inject liquidity. Although the move was initially viewed as a form of Yield Curve Control (YCC) to curb 30-year yields, it prompted a sharp rally in gold, which climbed over 4.35%.

The GDX/USD pair, while up, was not as robust as gold. Solid US job data and increased Treasury yields pushed gold lower, as it approached the 200-day Simple Moving Average (SMA) at $4,512. US Initial Jobless Claims for the week ending August 15 fell below expectations at 206K, compared to the anticipated 210K. Fed officials offered mixed signals, with St. Louis Fed President Alberto Musalem expressing confidence that bond market dynamics are influenced by strong growth and capital expenditure.

He mentioned being open to rate hikes in September but remained cautious about the upcoming meeting. Mary Daly of the San Francisco Fed noted that rising long-term bond yields pose a global challenge, questioning their effectiveness as an indicator. Fed minutes revealed concerns about inflation among some participants. On Friday, S&P Global Flash PMIs will be released, and technical analysis suggests gold remains bullish, having reclaimed the 200-day SMA.

Breaking above $4,500 could set the stage for testing May's 20-day high of $4,595 and the psychological $4,600 level. The next key resistance is $4,700, followed by the May 12 high at $4,735 and a cluster of six candles. Support is found at $4,500, with a breakdown exposing the 100-day SMA at $4,380 and the 50-day SMA at $4,164.

Historically, gold has been a valuable store of value and a hedge against inflation and currency depreciation, often sought by central banks during turbulent periods. Central banks added 1,136 tonnes of gold in 2022, the highest annual purchase since records began. Gold's inverse relationship with the US Dollar and Treasuries, as well as risk assets, underscores its role as a safe-haven asset.