Gold (XAU/USD) gained more than 1% on Wednesday, trading near $4,400, despite a partial recovery in the US Dollar and a rise in Treasury yields. The move came after the US Treasury Department announced a bond buyback operation for the September 10 auction of 10- and 20-year instruments, which helped keep the yellow metal underpinned ahead of key US inflation data due later this week.
US Treasury buyback supports gold despite yield headwinds
The US Treasury said it intends to buy up to $6 billion of outstanding securities maturing in the 10- to 20-year tranche. This is the first such operation under Secretary Scott Bessent, aimed at capping the rise in long-term bond yields, particularly from the 10-year to the 30-year. The announcement pushed the 10-year benchmark yield up five basis points to 4.845%, a headwind for gold, which typically suffers when yields rise because it offers no yield. However, the prospect of the Treasury stepping in to buy bonds appears to have provided a floor for gold prices.
Investors are also waiting for the release of US inflation data on Thursday and Friday. The ADP Employment Change four-week average rose to 12,000 from a downward-revised 10,000. Combined with last Friday's Nonfarm Payrolls report and comments from Fed Chair Warsh that the jobs data is “consistent with full employment,” markets are pricing in a quarter-point rate hike at the September 15-16 Federal Open Market Committee meeting. Money markets show a 63% probability of a hike, with a 37% chance of a hold, according to Prime Terminal.
Technical levels: consolidation near $4,400
Gold bounced off solid support at the 100-day Simple Moving Average (SMA) of $4,343, but has remained in a sideways range between $4,340 and $4,400 over the past two sessions. The Relative Strength Index (RSI) indicates that buyers are gaining momentum, but the metal faces key resistance at $4,425—the high from September 8—which is capping the advance and preventing a test of the $4,500 level.
If gold can break above $4,500, the next target is the 200-day SMA at $4,537. A move beyond that would expose $4,600, followed by the psychological $4,650 mark and the August 25 high of $4,697. On the downside, a break below $4,400 would bring the 100-day SMA into play as the first support. If that fails, the next support is the September 2 cycle low of $4,282, then the 50-day SMA at $4,261, and finally the $4,200 level.
Key takeaways
- Gold rose over 1% on Wednesday, trading near $4,400, supported by the US Treasury's bond buyback announcement.
- The US Treasury plans to buy up to $6 billion in 10- to 20-year securities, aiming to cap long-end yields.
- Markets price a 63% chance of a quarter-point rate hike at the September 15-16 FOMC meeting.
- Gold faces resistance at $4,425; a break above $4,500 opens the path to $4,537 and beyond.
Common questions
Why does the Treasury buyback announcement support gold?
The buyback is intended to cap long-term bond yields, which can reduce the opportunity cost of holding non-yielding gold. Even though yields initially rose on the news, the expectation that the Treasury will act to keep yields in check helps underpin the gold price.
What other data is gold traders watching this week?
Besides US inflation data on Thursday and Friday, traders will also watch US Initial Jobless Claims and the preliminary University of Michigan Consumer Sentiment Index for September. These reports could influence expectations for the Fed's next move.
What is the key resistance level for gold right now?
The immediate resistance is at $4,425, the high from September 8. If gold can break above that and then $4,500, the next target is the 200-day Moving Average at $4,537.
Gold's price action remains tied to the interplay between Treasury yields, the US Dollar, and expectations for Fed policy. The live gold price continues to consolidate near $4,400 as the market awaits the next catalyst.