Gold (XAU/USD) extends its advance on Monday, building on the strong rally seen last week following the US Treasury’s buyback announcement.
At the time of writing, XAU/USD trades around $4,644, up nearly 0.90% on the day, at levels last seen on May 15
The Treasury’s decision to increase its liquidity-support buybacks for longer-dated government bonds weighed heavily on the Greenback, with the US Dollar Index (DXY) plunging to a three-month low. Gold received a double boost from the move, benefiting from a weaker USD while also attracting safe-haven demand as investors focused on concerns surrounding US fiscal policy and rising government debt. Strategists at OCBC highlight that “USD debasement has re-emerged as a market theme” after the US Treasury unexpectedly expanded its long-end buyback programme, a move they say signals “discomfort with the recent rise in long-dated yields.” They add that the “resulting unwind of US steepener positions has likely reinforced other debasement trades, including a weaker USD, a rebound in gold and higher US inflation breakevens.” However, long-term US Treasury yields remain elevated despite last week’s buyback announcement, which could put the brakes on Gold’s advance.
The 30-year Treasury yield trades around 5.24%, close to its recent 19-year high of 5.33%. Higher yields can weigh on the non-yielding metal by increasing the opportunity cost of holding Gold. The US Dollar is also firmer on Monday after last week’s sharp decline.