Gold has been a hot topic this week again, owing much thanks to the US Treasury move on Wednesday. Bessent & co. called to double buybacks at the long-end of the curve and that led to a return of two key tailwinds for gold. That being a fall in the dollar and Treasury yields falling/being suppressed. The latter in particular is quite significant, with Bessent even doubling down on the narrative here.
In essence, it’s a signal that there is a clear “Bessent put” in the market right now.
Even though Treasury yields have bounced back up in the past few sessions, we’re still seeing gold stay poised as we look to the final stretch this week. The precious metal is up 0.6% to $4,544 as it looks to keep a firm break above the $4,500 level ahead of the weekend.
And more importantly, buyers will want to eye a firm break/close above the 200-day moving average (blue line) of $4,514. Keep above that and the momentum bias shifts to being more bullish for gold. But keep below, and the upside leg will still need a bit more impetus to power through before eyeing a test of $4,600 next.
So, where do we go from here?
For now, gold looks poised to round off yet another week of gains. It’ll be a third straight week of gains for the precious metal, with such a streak not seen since March.
The technical momentum is definitely starting to line up but how big of a fundamental shift is all this relative to what has been happening in the past four months?
The US Treasury move definitely does buy some short-term relief for bonds. But with Bessent outright saying that “yields do not reflect fundamentals” and that further action might be called for, there is a clear backstop in place it would seem.
If that is the case, it definitely does limit the hurt from the bond market as yields may not run up too far from here. And in turn, that also places a soft cap on any dollar strength.
Of course, the bond market will do what it wants to do if the macro backdrop does not fit in line with the US Treasury view. But for now at least, it once again reinforces the narrative of the dollar debasement alongside more incoherent and disruptive policy changes from the current US administration.
That has been a key factor in driving gold gains since last year and that is now coming back again.
Even if the gains here may not extend much higher just yet, I would argue that the latest development has definitely piqued the interest of gold bulls again. And in the bigger picture, it reinforces the more positive structural outlook for gold.
So as long as inflation pressures don’t scare the Fed into hiking rates in the near future, gold bulls might feel comfortable in riding on the “Bessent put”. And even in the medium-to-long-term, there’s now a very attractive proposition for a return to $5,000 again. If US-Iran tensions ease at some point, expect such a push to come about very, very quickly.
This article was written by Justin Low at investinglive.com.