After gold broke through $4,600, an anomaly appeared in the market: the decline in US long-term Treasury yields did not persist, yet the gold price did not follow with a significant pullback. ING commodity strategist Ewa Manthey believes this indicates that investors are no longer trading solely on expectations of lower interest rates, but also on concerns about US fiscal risks and currency depreciation.
Why Would Long-term Bond Buybacks Push Gold Higher?
The US Treasury plans to increase the scale of buybacks for 10-year to 30-year Treasury bonds, aiming to improve liquidity in the long-term bond market. After the news was announced, yields and the dollar fell back initially, and gold rose accordingly. Subsequently, long-end yields recovered some of their losses, but gold remained strong, leading the market to shift its focus from short-term interest rate changes to government borrowing scale and fiscal credibility.
Gold does not pay interest and is typically suppressed by high yields. However, when investors worry that debt expansion will erode the purchasing power of currency, gold may still attract buying due to demand for credit hedging, even if nominal yields are not low. This is the biggest difference between this round of market movement and an ordinary "rising expectation of interest rate cuts."
ETF and Central Bank Buying Provides a Floor
World Gold Council data shows that global gold ETFs saw renewed capital inflows in July, and the accumulation trend continued into August. Meanwhile, central banks maintained net purchases during the earlier phase of gold price adjustment. ETFs represent risk appetite in Western markets, while central bank gold buying leans more towards long-term reserve allocation. The simultaneous improvement in these two types of funds has given gold stronger resilience in a high-yield environment.
However, whether the capital flow can continue is key. If ETF buying is merely a short-term chase and the dollar and yields strengthen again, gold could still experience a deeper correction.
The Real Risks Remain Inflation and the Fed
ING cautions that rising energy prices could put renewed pressure on US inflation. If Federal Reserve officials continue to discuss rate hikes, the market will increase the probability of policy tightening again, potentially leading to a rebound in both the US dollar and Treasury yields, thus raising the opportunity cost of holding gold.
Therefore, the core issue going forward is not simply judging whether the Fed will cut rates, but observing whether it still has room for rate hikes. Hawkish remarks from the Jackson Hole symposium or inflation data could trigger the unwinding of long positions at high levels; if the policy discussion shifts towards growth and financial stability, it would be more favorable for gold.
ING previously forecast an average gold price of around $4,150 for the fourth quarter, significantly lower than the current market price. The institution acknowledges that its forecast faces upward revision risks, but this also indicates that the current gains have already priced in a substantial amount of positive news. Fiscal concerns, a weaker dollar, and capital inflows still support gold, but the medium to short-term environment is no longer a low-risk one for chasing the rally. For the market, whether $4,600 can transform from resistance into support is more important than simply setting a new high.
