Gold: Rally faces questions as buybacks reshape yields – BNY

BNY Mellon’s Geoff Yu notes Gold has surged through $4,500/oz. as investors reassess U.S. Treasury buybacks and their inflation implications. The report argues the intervention has calmed bond markets but may shift pressure into alternative stores of value like Gold and Bitcoin. Structural fiscal doubts and potential conflict with Federal Reserve objectives underpin the metal’s strength.

Treasury actions feed Gold demand

"One of the reasons the relief rally from the U.S. Treasury buyback announcement could be brief, is that short utilization wasn’t high in the first place in the long end. Our data confirm that. Investors took profit on long-end protection and didn’t rebuild it as the curve steepened."

"The subsequent rally therefore can’t be explained solely by cash-Treasury short covering; crowded steepener exposure is more likely concentrated in curve and derivative positions."

"Bond markets have calmed, which is meaningful, but the next test is whether managing the yield curve begins to conflict with monetary-policy objectives. If Treasury actions loosen conditions while inflation remains above target, the Fed may eventually need to offset some of that impulse. Gold pushing through $4,500/oz. and Bitcoin briefly touching $70,000 suggest markets don’t view the move as costless."

"Some of the adjustment may simply be migrating away from bond yields and into alternative stores of value."

"Although the U.S. actions have bought time and provided relief, official-sector intervention can only go so far and may prove counterproductive over time. Fiscal restraint remains structurally elusive globally, leaving inflation with a near-permanent fiscal markup."