Warsh's first Jackson Hole: Bond yields, a Treasury rescue and sticky inflation

Gold extended its rally as concerns over fiscal policy and a weakening US dollar gained traction following a surprise bond-market intervention. The precious metal climbed higher, edging out a small gain on Tuesday, Aug 25, after initially spiking to nearly $4,700 per ounce, the highest level since mid-May. This surge in gold is attributed to easing inflation concerns in the US and a decline in crude prices, which helped alleviate fears of inflation.

The drop in US bond yields has also bolstered the non-interest bearing gold, which has advanced by nearly 8% over the past week. The recent buybacks by the US Treasury, aimed at curbing a months-long sell-off and pushing the longest-dated yields to their highest levels in nearly two decades, have reignited interest in the "debasement trade."

This strategy has facilitated gold's remarkable rally in 2025, with investors seeking refuge in the precious metal to protect themselves from runaway budget deficits. Despite the potential downside, the market remains cautious about fiscal and bond market stability. US Treasury Secretary Scott Bessent has expressed readiness to expand buybacks of costlier debt, although he has not provided further signals on Monday.

Investors are also eagerly awaiting comments from US Federal Reserve chair Kevin Warsh on Friday during the annual Jackson Hole gathering, as he is expected to shed light on the Fed's stance on persistent inflation. The recent rebound in gold has propelled the metal above the 200-day moving average, an important indicator of momentum.

This surge has attracted the attention of exchange-traded funds backed by gold, which added more than 28 tonnes in the week ending August 23, marking the highest increase since January. Additionally, a growing interest in the 25-delta call skew for the largest gold ETF suggests that investors are becoming more bullish and willing to pay for upside exposure.

However, the safe-haven attributes of gold are also being tested by rising global trade tensions. The US has threatened economic repercussions against nations engaging in business with Iran as part of its campaign to isolate the Islamic Republic. Moreover, the United States is embroiled in a trade war with Canada following the breakdown of talks on August 22.

Gold closed up 0.1% at $4,657.17 an ounce in New York, while silver declined by 0.4% to $68.66 an ounce. Platinum and palladium also experienced a drop, while the Bloomberg Dollar Spot Index, which measures the US currency, saw a 0.1% decline.