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Gold bars in the safe of the National Bank of Kazakhstan in the city of Almaty
Gold prices rose more than 2% on Friday, surpassing the $4,600 per ounce level and hitting their highest levels in more than 3 months, supported by a weaker dollar and the yellow metal’s breakthrough of key technical levels, as well as a U.S. plan to expand long-term Treasury bond buybacks.
At the time of writing, spot gold rose 2.15% to $4,616.55 an ounce, after touching $4,617.63 during the session, its highest level since May 15.
U.S. gold futures for December delivery rose 2.21% to $4,672.35 an ounce, after hitting $4,674.91. Gold is on track for a weekly gain of around 5%, recording its rise for the third week in a row.
Dollar Decline
The rise in gold came as the US dollar index, which measures the currency’s performance against a basket of 6 major currencies, fell to around 98.84 points. The dollar’s weakness makes gold less expensive for holders of other currencies, supporting demand.
The U.S. currency came under pressure after the Treasury announced a plan to double the maximum buyback of some long-term bonds, in a move aimed at boosting liquidity in the debt market.
The plan includes increasing the value of purchases of 10- to 20-year, 20- and 30-year bonds from $2 billion to at least $4 billion per transaction, starting September 9, according to the US Treasury statement.
Buying bonds can raise their prices and put pressure on their yields, reducing the opportunity cost of holding non-yielding gold. However, US bond yields rose again during Friday’s trading, as the 10-year Treasury yield reached about 4.735%, compared to 4.698% at the previous close.
The continued rise in gold, despite rising yields, suggests that a weaker dollar, technical momentum, and concerns about the U.S. debt market remained more influential in the metal’s trading.
Level 4700 USD
Bart Milick, director of commodity strategy at TD Securities, was quoted by Reuters as saying that a breach of technical levels was a key factor in the rally, suggesting that the $4,700 level is likely to become the next target if the current momentum continues, along with the impact of the dollar’s decline.
In contrast, higher interest rates remain a factor that may limit gold’s gains. The Federal Reserve (US central bank) in its last meeting kept the interest rate range at 3.5% to 3.75%, while 3 members voted in favor of increasing it by a quarter of a percentage point, due to inflation continuing above the target level.
The recent rise in prices has made retail buyers in India reluctant to buy, while demand remained stable in China, the yellow metal’s largest consumer market.
Other precious metals performed as follows:
- Spot silver rose 2.14% to $69.54 an ounce, after surpassing $70 during the session.
- Platinum climbed 2.62% to $1,885.16.
- Palladium increased 1.33% to $1,345.28 an ounce.