Gold extends rally as US Treasury bond buybacks revive concerns over fiscal policy, dollar weakness

GOLD edged higher as US inflation concerns eased, extending a four-day rally sparked by a surprise bond-market intervention that has revived concerns over US fiscal policy and US dollar weakness.

Bullion eked out a small gain on Tuesday (Aug 25), following an earlier spike that saw prices hit almost US$4,700 an ounce, the highest intra-day level since mid-May.

Treasuries gained after a decline in crude prices helped soothe inflation fears, with officials from Iran and Oman announcing an “interim framework” aimed at resuming shipping through the Strait of Hormuz. 

The drop in US bond yields helped boost non-interest bearing gold, which has advanced almost 8 per cent in the past week after US Treasury buybacks aimed at halting a months-long sell-off that pushed the longest-dated yields to the highest in almost two decades. 

Those efforts have renewed interest in the so-called debasement trade, which helped power gold’s blistering rally in 2025 as investors took shelter in the precious metal and avoided sovereign debt and currencies to protect themselves from runaway budget deficits.

US debt levels have ballooned faster than expected, while US court decisions reversing tariffs have cut a source of government revenue just as the Pentagon seeks to increase spending, according to Natixis analyst Bernard Dahdah.

“Despite a higher opportunity cost of holding gold, the market is concerned about fiscal and bond market stability,” he wrote in a note on Tuesday, forecasting bullion will hit US$5,000 by year-end and average that level in 2027.

US Treasury Secretary Scott Bessent has said he is prepared to expand buybacks of costlier debt, though he refrained from any further signals on Monday.

Investors will also be looking for US Fed chair Kevin Warsh to clarify his views on how the US Federal Reserve should react to stubborn inflation when he speaks on Friday at the annual Jackson Hole gathering.

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Uncertainty over US Fed policy was cited by Fidelity Holdings’ George Efstathopoulos as a catalyst for doubling his fund’s gold holdings over the past three weeks. The fund manager told Bloomberg News that he began his recent accumulation after retreating from long-dated Treasury following a July Fed meeting that left interest rates unchanged.

Gold’s marked rebound in recent weeks has taken the metal above the 200-day moving average that is often viewed as an important measure of momentum. In a sign of wider investor participation, bullion-backed exchange-traded funds tracked by Bloomberg added more than 28 tonnes in the week ended Aug 23, the most since January.

An uptick in the 25-delta call skew for the biggest gold ETF – a gauge of demand for out-of-the-money call options relative to puts – also signals investors are becoming more bullish and willing to pay for upside exposure.

Adding to policy uncertainty, the metal’s safe-haven attributes are also being tested by growing global trade tensions. The US has threatened economic punishment against countries doing business with Iran as part of a campaign to isolate the Islamic Republic. The world’s largest economy is also spiralling into a trade war with Canada after talks broke down on Aug 22.

Gold closed up 0.1 per cent at US$4,657.17 an ounce in New York. Silver slipped 0.4 per cent to US$68.66 ounce. Platinum and palladium also declined, while the Bloomberg Dollar Spot Index, a gauge of the US currency, was down 0.1 per cent. BLOOMBERG