Gold jumps toward $4,500 as yields slide on buybacks

Gold prices surged more than 3% on Wednesday as a US Treasury announcement on longer-dated bond buybacks pushed Treasury yields and the dollar lower, boosting demand for the non-yielding metal.

Spot gold rose 3.7% to $4,495.02 an ounce, after touching $4,498.69 earlier in the session. That was the highest level since June 4. US gold futures gained nearly 3% to $4,552.

The move came as the Treasury said it would double the size of its liquidity-support buyback operations for longer-dated bonds.

Falling yields typically support gold because the metal does not generate interest income, while a weaker dollar makes bullion cheaper for holders of other currencies.

Treasury buyback pushes bond yields lower

US Treasury yields fell sharply after the buyback announcement.

The 30-year Treasury yield dropped more than eight basis points to 5.20%, while the 10-year yield declined nearly five basis points to 4.660%.

The 30-year yield had climbed to its highest level since 2007 on Tuesday, adding to pressure on gold in recent sessions.

Treasury yields have risen sharply since July amid higher energy prices and persistent concerns about inflation linked to the Middle East conflict.

The latest announcement reversed some of that move.

Sources cited by Bloomberg said the administration may be seeking a way to contain long-term Treasury rates.

Robert Gottlieb, an industry expert and former head of precious metals at Koch Supply and Trading, described the move as unexpected and bullish for gold in a Reuters report.

“This was totally unexpected. Very bullish for gold due to lower yields on longer-dated Treasuries and as it may help to bring the dollar lower,” Gottlieb said.

TD Securities also said the Treasury announcement had given precious metals a “jolt of life.”

The firm noted that investment flows into gold could return quickly if Treasury liquidity support, a Federal Reserve willing to look through an energy shock and growing stagflation concerns lead to lower real interest rates.

Dollar weakness adds support for bullion

Gold also benefited from a weaker US dollar.

The US Dollar Index fell 0.8% to 98.85, making dollar-denominated bullion less expensive for buyers using other currencies.

The move comes ahead of the release of minutes from the Federal Reserve's latest policy meeting.

Markets currently expect the Fed to keep interest rates unchanged at its September 15-16 meeting, with the probability of a hold at 65%, according to CME Group's FedWatch Tool.

Recent weaker US economic data have reduced expectations for a rate hike.

The Fed has kept interest rates unchanged at its last five meetings, while inflation remains a key consideration as higher energy prices add pressure to the outlook.

Gold approaches key technical resistance

Gold's rally also improved its technical position. Spot gold broke above its 100-day moving average at around $4,327.

A sustained move above the moving averages followed by resistance around $4,700 and the May 12 daily high of $4,735.

However, a failed breakout above $4,500 could send prices back toward $4,400. Further support levels are seen at $4,324 and $4,311, followed by the 50-day moving average at $4,249.

Other precious metals also advanced on Wednesday. Spot silver gained 4.3% to $66.03 an ounce, platinum rose 5% to $1,798.33 and palladium climbed 3.1% to $1,329.33.