Gold: nears three-month highs as US Treasury takes action and the dollar falls

Spot price at $4,581 per ounce. Silver and platinum are also rising

(Il Sole 24 Ore Radiocor) - Gold prices are surging, hitting their highest levels in almost three months, buoyed by a weaker dollar and the US Treasury’s decision to step up its repurchases of government bonds. The precious metal is thus trading at $4,581 per ounce in the spot market (+1.4 per cent), having gained 4.6 per cent since the start of the week, whilst futures are trading at $4,638 (+1.46 per cent). To take things in order, the weakening of the greenback, which has pushed the euro/dollar exchange rate back towards 1.17 (currently at 1.1696), has bolstered not only gold but all precious metals, with spot silver at $69.87 (+2.6 per cent) and platinum at $1,366 (+2.7 per cent). “The weak dollar is helping the sector; ETFs have resumed massive buying of gold, with inflows not seen since last January,” commented analysts at MPS.

The weakening of the dollar and the surge in gold prices are reactions to the US Treasury’s decision to double the scale of its buybacks of longer-dated securities in the coming quarter, bringing them to at least $4 billion per transaction. Although yields have recouped much of the fall caused by the buybacks over the course of the week, the move reflects concerns about rising public debt. All eyes are now on the Fed’s next meeting in September, with traders – according to the CME FedWatch tool – pricing in a 65.4 per cent probability that the US central bank will leave rates unchanged and a 34.6 per cent probability that it will raise them. Although gold is generally regarded as a hedge against inflation, higher interest rates tend to reduce the appeal of the metal, which offers no yield.

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