US Treasury bond buy-back reinforces gold debasement trade as Jackson Hole meeting looms

Treasury buy-backs bolster gold’s rally as investors await US Federal Reserve’s annual meeting at Jackson Hole

The US Treasury’s decision to boost its buy-backs of long-maturity bonds is strengthening the debasement trade on gold, as investment banks turn more upbeat on the precious metal before the Federal Reserve’s annual meeting in Jackson Hole.

Gold rose 0.2 per cent to a three-month high of US$4,689.3 an ounce on Monday, extending a 5.1 per cent gain last week after Treasury Secretary Scott Bessent unveiled the repurchase programme, which he said was likely to surpass US$4 billion. The announcement renewed immediate concerns about the fiscal stress on Washington and the erosion of the purchasing power of the US dollar, which benefits gold as an alternative to fiat currencies.

Morgan Stanley predicted that gold prices would rise to US$5,000 by 2027, while the Dutch bank ING said that gold might face a risk of further upside throughout the year. A dovish tone by Federal Reserve chair Kevin Warsh at the coming Jackson Hole symposium later this week would add more impetus to bullion, which moves inversely with interest rates.

“Gold’s resilience suggests that the rally is not simply a response to lower yields,” said Ewa Manthey, a commodity strategist at ING.

“The prospect of larger Treasury buy-backs has refocused attention on government borrowing and fiscal credibility. It has also revived concerns about currency debasement, reinforcing gold’s appeal as a store of value,” she added.

The debasement trade has kept demand for gold buoyant over the past few years, with investors boosting exposure to the metal in their portfolios to diversify away from Treasuries and the US dollar.