Gold price gets US bond policy boost
Gold hit a three-month high as the US Treasury expanded bond purchases, weakening the dollar amid rising debt concerns.
Gold prices have risen to around $4,600 per ounce this week, potentially having more upward momentum if U.S. policymakers step in to keep long-term borrowing costs low, according to the World Gold Council. The surge in gold prices followed the U.S. Treasury's unexpected increase in purchases of longer-dated government bonds, which weakened the U.S. dollar and raised concerns about the growing debt burden.
This issue is exacerbated by the U.S. debt hitting $40 trillion just this week, after doubling in less than a decade. The Treasury's decision to double buybacks of longer-dated Treasuries was announced on August 19, immediately causing bond yields and the dollar to drop, while gold rose over 3% to nearly $4,500 per ounce, its biggest one-day gain since February.
The council believes that the Treasury's action may be moving in the direction of yield-curve control, although it is not quite there yet. This move would involve the Federal Reserve buying bonds to cap longer-term interest rates directly. The World Gold Council argues that this could lower real interest rates and increase gold's value, as investors view it as protection against financial repression - governments keeping borrowing costs below market levels.
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