Gold Weekly Forecast: Bulls dominate as US Treasury Department intervenes in bond market

Gold extended its uptrend to a fresh three-month high above $4,500.
The US Treasury Department announced a plan to increase long-term bond buybacks.
The technical outlook suggests that the bullish bias remains intact in the short term.

Following the previous week’s choppy action, Gold (XA/USD) gathered bullish momentum and advanced to its highest level since late May and touched $4,600. While XAU/USD’s technical outlook highlights buyers’ dominance in the near term, next week will feature key events that could ramp up market volatility.

Gold surges after US Treasury Department’s unexpected bond buyback announcement

The US Dollar (USD) started the week under bearish pressure and Gold rose nearly 1% on Monday as investors continued to scale back bets for a Federal Reserve (Fed) rate hike in September following the previous week’s disappointing economic data releases.

With tensions in the Middle East coming back under the spotlight on Tuesday, Gold lost its bullish momentum and closed the day deep in negative territory. US President Donald Trump said late that the US administration is not seeking an extension of the Memorandum of Understanding. Additionally, Trump reportedly told Fox News that they will bomb Oman if it gets in the way of his administration’s negotiations with Iran.

In the meantime, the UK Maritime Trade Operations (UKMTO) reported early Tuesday that a vessel was struck by an “unknown projectile” while attempting to pass through the Strait of Hormuz. In the meantime, the yield on the 30-year Treasury bond climbed to its highest level in nearly two decades as investors reacted to heightened uncertainty surrounding the crisis in the Middle East.

In the second half of the day on Wednesday, the USD sold off sharply as the US Treasury Department unexpectedly announced that it will double the size of some long-dated debt buyback operations to support market liquidity. With US Treasury bond yields correcting sharply lower, Gold broke out of its range and climbed above $4,500 for the first time since early June.

According to TD Securities, the announcement that the US Treasury is increasing the size of liquidity-support buyback operations has “given metals a jolt of life,” providing a fresh catalyst for precious metals. The firm notes that “while the fierce bid has faded in recent days, the flows could quickly return amid Treasury liquidity support, a Fed willing to look through an energy shock, and a growing stagflation narrative, which should all ultimately see lower real rates.” In their view, this combination of policy support and macro concerns sets the stage for renewed upside in Gold and the broader metals complex.

Following Wednesday’s volatile action, Gold entered a consolidation phase on Thursday and closed flat. US President Trump announced late Wednesday that they will launch an unprecedented “crushing economic operation” against Iran and warned that any countries offering support to Tehran will also face severe financial retaliation, causing investors to adopt a cautious stance and capping XAU/USD’s upside for the time being.

As the USD failed to stage a meaningful recovery early Friday, Gold regained its traction and extended its rally to a fresh 12-week high above $4,600. Heading into the weekend, the USD managed to limit its losses after the preliminary August Purchasing Managers’ Index (PMI) surveys highlighted healthy business activity in the private sector and capped Gold’s upside.

Gold investors to look for clarity on Fed policy outlook, Middle East crisis

US Treasury chief Scott Bessent said that the US will impose “the toughest sanctions in history” on Iran and added that he will share more details at a press conference on Monday. A sharp increase in Crude Oil prices in response to this announcement could weigh on Gold with the initial reaction. Conversely, a pullback in energy prices could have a positive impact on the precious metal’s action.

On Wednesday, the US Bureau of Economic Analysis (BEA) will publish its second estimate of the annualized Gross Domestic Product (GDP) growth for the second quarter and release Personal Consumption Expenditures (PCE) Price Index figures for July.

On a monthly basis, investors expect the core PCE Price Index, the Fed’s preferred gauge of inflation, to increase by 0.2%. A stronger increase could cause investors to have second thoughts about a Fed policy hold in September and open the door to a downward correction in Gold. According to the CME FedWatch Tool, markets currently price in about a 35% probability of a 25 basis points (bps) interest rate hike next month. On the other hand, a softer-than-forecast monthly core PCE inflation print could help XAU/USD stretch higher.

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