Gold surges to 11-week highs as Treasury ramps up bond buying and dollar tumbles

OUTSIDE MARKET DEVELOPMENTS: Mounting fiscal concerns drove a global bond sell-off on Tuesday, sending long-term yields to multi-decade highs. U.S. 30-year Treasury yields hit their highest since 2007 around 5.33–5.34%; Japan’s 10-year reached a near-30-year high around 3%; German 10-year Bunds hit levels not seen since 2011.

The long end of the curve saw the most impact as the U.S. national debt nears $40 trillion, with elevated government debt in Japan, France, the UK, and elsewhere adding to the angst. Markets are increasingly skeptical that spending will be brought under control, pushing up the “term premium” required to hold long-dated government debt.

While governments issue large amounts of debt, tech "hyperscalers" are flooding the market with corporate bonds of their own. Competing for the same pool of buyers, higher yields on corporate issues are crowding out comparable Treasuries – helped by the fact that some of these issuers carry higher credit ratings than the U.S. itself, along with massive cash flow and actual fiscal discipline.

Additional contributing elements included sticky inflation, thinner summer trading volumes, and some uncertainty about the hawkish tilt of the Warsh Fed. I anticipate the minutes from the July FOMC meeting – slated for release this afternoon – will reflect ongoing inflation worries and reinforce those higher-for-longer expectations.

Treasury Secretary Bessent just announced that it will at least double the size of its liquidity-support buyback operations for longer-dated Treasuries (10- to 20-year and 20- to 30-year sectors), raising the maximum from $2 billion to at least $4 billion per operation starting 9-Sep. The move, aimed at providing greater liquidity amid recent market stress, triggered a sharp rebound in bonds, with the 30-year yield retreating nearly 10 basis points from multi-year highs and the 10-year yield declining as well.

The U.S. government currently spends about $1.17 trillion a year – more than $3 billion a day – on interest payments for its nearly $40 trillion national debt, making debt servicing one of the largest items in the federal budget. Not surprisingly, the Trump administration appears to view the recent rise in long-term yields as intolerable.

Whether Treasury's move is sufficient to reverse the steepening of the yield curve remains to be seen. I suspect not.

The dollar index is plumbing 13-week lows and is trading below its 200-day moving average for the first time since May. Nearly 50% of this year's rally has been retraced. If the midpoint of the range at 98.68 is violated, focus would shift to the next Fibonacci level at 97.94, with potential to the Apr/May lows at 97.63/62.



The nearly six-month U.S.-Iran conflict remains stalled after the MOU signed in June expired without a broader deal. President Trump has stated no talks are underway or scheduled while claiming the Strait of Hormuz is open under a continued U.S. naval blockade. Iran insists the waterway stays closed until Washington lifts the blockade, sanctions, and other measures, and seeks a full end to the war rather than a ceasefire.

Shipping traffic through the Strait remains sharply curtailed, with only single-digit vessel crossings recorded daily amid ongoing uncertainty and security risks. As a result, oil prices have climbed to three-week highs, with Brent crude trading near $91.50 a barrel and WTI around $85.50, supported by persistent supply concerns tied to the waterway.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$32.62 (+0.75%)
5-Day Change: -$44.29 (-1.00%)
YTD Range: $3,945.52 - $5,595.02
52-Week Range: $3,311.66 - $5,595.02
Weighted Alpha: +19.30

Gold surged to fresh 11-week highs, spurred by the surprise announcement that Treasury will at least double the size of its long-end liquidity buybacks. Yields have retreated from recent highs, and the dollar plunged in reaction.



The targeted 200-day MA $4,514.71 quickly came within striking distance. A breach of this level would bode well for a push to the $4,584.68 Fibonacci level (38.2% retracement of this year's correction). Beyond that, the midpoint of this year's range at $4,777.59 would be in play.

Evidence is building that the corrective low is in place at $3,945.52 and the underlying uptrend is reasserting itself as bullish seasonal factors kick in. Also note gold's resilience even as long yields recently hit multi-decade highs. This suggests to me that the underlying fiscal concerns are overshadowing the higher yield environment that has emerged, stoking safe-haven interest.

Today's U.S. session low at $4,362.33 is now protected by the highs from earlier in the week at $4,435.65/28.19. More substantial supports are marked by today's overseas low of $4,325.73 and last week's low at $4,311.40.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$0.025 (+0.04%)
5-Day Change: -$1.771 (-2.71%)
YTD Range: $54.778 - $121.630
52-Week Range: $36.976 - $121.630
Weighted Alpha: +37.38

Silver is recovering from a two-week low set overseas, helped by Treasury's announcement and the corresponding retreat in the dollar. Given the greater sensitivity to economic growth concerns and risk sentiment, the white metal is lagging on the rally and has yet to set new cycle highs.



I am cautiously encouraged by the 20-day moving average crossing above the 50-day for the first time since early June. However, chart resistances at $66.540/547 and $66.782 must be cleared to set a more favorable short-term tone, keeping focus on tests of the 100-day MA at $68.524 and 200-day MA at $72.073.

If gold continues to move higher, I think silver will indeed extend to new cycle highs. That being said, the trend in the gold-silver ratio remains moderately biased to the upside since the 43.573 low in January.

Silver continues to benefit from a multi-year structural supply deficit – now in its sixth consecutive year with a projected shortfall of around 46 Moz this year – as mine production remains largely inelastic and fails to keep pace with demand. On the demand side, industrial uses account for roughly 58% of consumption, fueled by strong growth in solar photovoltaics, electronics, electric vehicles, and emerging AI infrastructure needs, exacerbating the persistent supply shortfall.

Intraday supports at $65 and $63.334 (U.S. session low) protect the more important overseas low at $62.574. The latter now provides a solid intervening barrier ahead of the now uptrending 20- and 50-day MAs at $61.517/293.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

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