Gold surged more than 3.5% on Wednesday, trading at $4,482 per troy ounce, as a US Treasury buyback programme sent long-dated bond yields tumbling. The move came on the same day the Federal Reserve released minutes from its July meeting, which showed three members of the Federal Open Market Committee (FOMC) voted to raise interest rates.
Fed minutes reveal hawkish dissent
The July FOMC meeting concluded with rates held unchanged, but the vote was not unanimous. Three dissenting members argued that price pressures were “broad-based” and that the committee should adopt a more restrictive policy stance. The minutes also noted that “many” participants believed “policy tightening would likely be necessary if inflation did not decline.” There was no discussion of a rate cut.
Despite the hawkish undertone, gold prices rallied, indicating that other factors were driving the market.
Treasury buybacks drive yields lower
The primary catalyst for gold’s advance appears to be a US Treasury bond buyback operation. The yield on the 30-year bond, which had reached its highest level since 2007 on Tuesday, fell by more than eight basis points to 5.20%. The 10-year note yield dropped nearly five basis points to 4.660%.
Bloomberg cited sources suggesting the administration may be using buybacks to keep long-term yields contained. US bond yields had risen sharply since July, partly because high energy prices and the ongoing Middle East conflict stoked inflation expectations. The Fed has left rates unchanged for five consecutive meetings as price pressures cool, but longer-term yields continued to climb until this week’s intervention.
Dollar weakness adds support
The US Dollar Index (DXY), which measures the greenback against six major peers, fell 0.80% to 98.85. A weaker dollar makes gold, which is priced in dollars, cheaper for overseas buyers and tends to support the precious metal.
Gold is now approaching its 200-day simple moving average (SMA) at $4,510. Bullish momentum, as measured by the Relative Strength Index (RSI), suggests further upside potential. If the metal closes Wednesday’s session above $4,500, the 200-day SMA becomes the next resistance area, followed by $4,700 and the May 12 daily high at $4,735.
On the downside, a false breakout above $4,500 could trigger a pullback below $4,400, then to the weekly low at $4,324. The last line of defence before a deeper correction is last week’s low at $4,311, ahead of the 50-day SMA at $4,158.
Key takeaways
- Gold rose over 3.5% on Wednesday, trading at $4,482, driven by a US Treasury buyback that pushed yields lower.
- Fed minutes from July showed three dissenting votes for a rate hike, but markets focused on the bond market intervention.
- The 30-year and 10-year Treasury yields dropped sharply, and the US Dollar Index fell 0.80%.
- Gold is approaching the 200-day SMA at $4,510, with further upside targets at $4,700 and $4,735.
Common questions
Why did gold rally despite hawkish Fed minutes?
Gold rallied because the US Treasury buyback operation had a larger immediate impact on yields and the dollar than the hawkish Fed minutes. Lower bond yields and a weaker dollar are supportive for gold prices.
What is a Treasury buyback?
A Treasury buyback is when the US government repurchases its own bonds from the market, reducing supply and pushing yields lower. This can be used to help manage borrowing costs and calm volatile bond markets.
What are the next key levels for gold?
The immediate resistance is at the 200-day SMA near $4,510. Above that, targets include $4,700 and the May high at $4,735. Support lies at $4,400 and then $4,324.
Keep track of the latest moves on our live gold price page. The upcoming economic data includes Initial Jobless Claims, a speech by St. Louis Fed President Alberto Musalem, and S&P Global Flash PMIs, which may influence the precious metal’s direction.