Gold gains momentum above $4,600 on US Treasury buyback plans
- Gold price edges higher to near $4,625 in Monday’s early Asian session.
- Bessent said he may increase the government's repurchases of Treasuries further.
- Iranian official dismissed the threat of a fresh round of US economic sanctions as a “desperate” ploy.
Gold price (XAU/USD) gains traction to around $4,625 during the early Asian trading hours on Monday. The precious metal climbs to the highest since May 15 as the US Treasury's buyback support plan weighs on the US Dollar (USD).
US Treasury Secretary Scott Bessent said on Thursday the government could increase bond buybacks beyond $4 billion, a day after the department unveiled plans to double buybacks of longer-dated securities.
This development has cooled Treasury yields and dragged the USD lower. It’s worth noting that because gold is priced in the USD, a weakening currency makes it significantly cheaper and more attractive to foreign buyers.
"A big factor, of course, is technical... next step is $4,700 if this momentum continues, but also I think it's been very much driven by a drop in the U.S. dollar," said Bart Melek, global head of commodity strategy at TD Securities.
On the other hand, energy-driven inflation concerns amid ongoing Middle East tensions could raise the prospect of Federal Reserve (Fed) rate hikes in the coming months. This, in turn, might cap the upside for the yellow metal. Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
Iran's Foreign Minister Abbas Araghchi dismissed the threat of a fresh round of US economic sanctions as a “desperate” ploy and said the expected new measures would fail to defeat Tehran, per Reuters. US President Donald Trump last week announced a new campaign to increase the pressure on the Iranian economy, calling it “the most crushing economic operation ever taken against any country”.
Treasury support at the long end underpins Gold as Fed looks through energy
According to TD Securities, “the signal of the Treasury looking to support the longer end may offer enough support on its own,” particularly for Gold and the broader precious metals complex. This is reinforced by “a Fed willing to look past higher energy prices,” which, in their view, helps sustain the current higher trading range and keeps the door open to further upside as trend-following flows respond to the evolving policy backdrop.
Technical Analysis: Gold maintains a constructive outlook amid overbought RSI momentum
In the daily chart, XAU/USD holds a bullish near-term bias as it extends above the 100-day simple moving average (SMA) and the Bollinger middle band, keeping the broader uptrend supported. However, the latest 14-period Relative Strength Index at 70.81 shows overbought conditions, hinting that upside momentum could be stretched even as price pushes toward the upper Bollinger band.
On the topside, immediate resistance is aligned with the Bollinger upper band at roughly $4,675.80, where fresh supply could emerge if buyers attempt another leg higher. On the downside, initial support is seen at the current price area as a nascent floor, followed by the 100-day SMA at $4,379.39 and the Bollinger middle band at $4,305.50, while a deeper correction would expose the lower Bollinger band near $3,935.20.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.