Gold rallies as Bessent's bond intervention revives the debasement trade

Gold trades in 3-month highs

Gold extended last week's powerful gains on Monday, climbing to around $4,660 an ounce and reaching its highest level since mid-May as investors continue to reassess the outlook for US debt, inflation and monetary policy.

The latest leg higher follows the US Treasury's surprise decision last week to at least double the size of its buyback operations for longer-dated Treasury securities. Treasury Secretary Scott Bessent announced that purchases of 10- to 30-year debt would rise to at least $4 billion per operation, after the 30-year Treasury yield had climbed to its highest level since 2007.

The intervention initially pushed long-term yields lower and weakened the US dollar, creating a powerful tailwind for gold. The World Gold Council estimated that gold rallied around 3% following the Treasury announcement as yields and the dollar fell.

The bullish move in the price of gold began at the beginning of August, though, when a break out of its month-long sideways trading range occurred. Since then the price of gold has risen by 15%, on track for its biggest monthly gain ever if sustained through month-end.

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Bessent lights the fuse

The significance of Bessent's move goes beyond the relatively modest size of the purchases.

The Treasury's buybacks are designed primarily to improve liquidity and support the functioning of the long-end of the government bond market, rather than represent a conventional quantitative-easing programme. But markets have focused on the signal: Washington appears increasingly concerned about the level of long-term borrowing costs and the impact they could have on an already stretched fiscal position.

US government debt has now surpassed $40 trillion, while the federal deficit remains substantial. The combination of heavy borrowing, elevated interest costs and persistent inflation has intensified concerns about the long-term sustainability of US fiscal policy.

That is precisely the environment in which gold tends to attract demand.

Gold carries no credit risk and cannot be created by a government or central bank. When investors become concerned that fiscal policy could ultimately result in currency debasement or higher inflation, demand for the precious metal can increase as investors seek an alternative store of value.

The result is a classic debasement trade: weaker confidence in government debt and the dollar translates into stronger demand for gold.

The dollar and yields remain key

The relationship between gold, Treasury yields and the US dollar will remain crucial.

Gold does not pay interest, meaning its relative attractiveness generally falls when real yields rise. Conversely, falling yields reduce the opportunity cost of holding the metal. A weaker dollar also makes gold cheaper for holders of other currencies, supporting international demand.

The Treasury announcement provided a powerful demonstration of that relationship. The 30-year yield fell sharply immediately after the buyback announcement, while the dollar also weakened.

However, the bond market has not been completely convinced by the intervention. Long-term yields have subsequently regained much of last week’s losses and remain elevated, with the 30-year yield still around 5.25% on Monday. Persistent concerns over debt, inflation and the scale of government borrowing mean the underlying fiscal problem has not disappeared.

For gold, that may actually be supportive: if Treasury intervention limits yields without resolving the underlying debt problem, investors could become increasingly interested in hard assets as a hedge against fiscal deterioration.

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Iran adds an inflationary complication

Geopolitics is providing another source of support.

The Trump administration is preparing new sanctions on Iran, with Treasury Secretary Bessent warning of a major escalation in economic pressure on Tehran. Markets are assessing the risk that further sanctions could disrupt Iranian oil supplies and push energy prices higher.

That creates a complicated environment for the Federal Reserve.

Higher oil prices could reinforce inflationary pressures and make it more difficult for the Fed to cut interest rates. At the same time, geopolitical uncertainty and concerns over economic growth could increase demand for traditional safe-haven assets such as gold.

The result is potentially favourable for bullion even if the Fed remains cautious: gold can benefit from both inflation fears and risk aversion.

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PCE and Jackson Hole in focus

Attention now turns to the US economic calendar, particularly the July PCE inflation report – the Fed’s preferred inflation gauge - and Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole Economic Symposium on Friday (3pm BST).

The PCE data will help determine whether inflation is moving sufficiently towards the Fed's 2% target to justify further rate cuts. The latest CPI report showed annual inflation at 3.4% in July, underlining the challenge facing policymakers.

The Fed's latest meeting minutes also showed that several policymakers were concerned that persistent inflation could require higher interest rates, particularly given the effects of tariffs, energy prices and AI-related investment spending.

Warsh's Jackson Hole speech could therefore be pivotal for gold. A dovish message pointing towards lower rates would likely reinforce the decline in yields and support bullion, while a hawkish stance could push real yields higher and temporarily challenge the rally.

Gold's next test

Gold's move above $4,600 marks a significant acceleration after the metal spent the month of June consolidating. The fact that the rally has been accompanied by renewed concerns about US fiscal sustainability gives the move a broader macroeconomic foundation than simply safe-haven demand.

The key question now is whether the Bessent effect can continue to feed through into lower yields and a weaker dollar, or whether bond markets once again push long-term borrowing costs higher.

For now, the gold market appears to be betting that fiscal concerns will remain a defining theme.

Technical analysis of the gold price

Gold's move above the 200-day simple moving average (SMA) and the late May peak at $4,595.33 are technically significant with the 50% retracement of the January-to-June decline and the May peak at $4,772.16-to-$4,773.57.

Gold daily candlestick chart

Another potential target zone consists of the February $4,842.60 low and the $4,891.54 April peak. If overcome on a daily chart closing basis, the 61.8% Fibonacci retracement at $4,968.05 and the psychological $5,000 region may be reached as well.

Minor support may be spotted around the 38.2% Fibonacci retracement around $4,575 and  around the 200-day simple moving average (SMA) at $4,516.55.

The current bull leg will remain in play while no bearish reversal takes the gold price below its 14 August low at $4,311.04.

How to trade gold

1. Do your research on gold, the key macro drivers and the upcoming PCE data and Jackson Hole speech that could influence the next move
2. Decide whether you want to trade via spread betting or CFD trading 
3. Open a trading account with us
4. Search for gold in our gold trading platform
5. Place your trade