Gold, which surged over 4% on Wednesday after the U.S. Treasury suddenly announced an increase in its long-term bond buyback program, faced profit-taking and multiple negative factors in early trading on Thursday (August 20). Spot gold briefly dipped to $4,450.08 per ounce before gradually recovering after Treasury Secretary Bessant reiterated that the buyback program could exceed $4 billion, ultimately closing at $4,516.19, a slight decrease of 0.1%. The price reached a high of $4,540.63 during the session, a new high since June 2. U.S. gold futures closed up 0.6% at $4,571.40. Behind the seemingly calm closing price lies a fierce struggle between inflation concerns and expectations of declining real interest rates, as well as a deep interplay of multiple forces including fiscal intervention, monetary policy independence, and geopolitical conflicts. This reflects a profound shift in the current global asset pricing logic: against the backdrop of US public debt surpassing $40 trillion for the first time, long-term yields approaching 20-year highs, and the Middle East conflict continuing to push up oil prices, gold is not only a traditional bastion of safe haven and inflation hedge, but also a concentrated reflection of the market's dual concerns about "fiscal sustainability" and "currency devaluation".

Ministry of Finance buyback: a short-term stimulant or a long-term credit overdraft?

On Wednesday, the U.S. Treasury announced it would double the size of its repurchase agreements for 10- to 30-year Treasury bonds, with each transaction at least $4 billion, injecting a strong boost into the already strained bond market. Long-term yields fell sharply, the dollar sold off aggressively, and gold and other "devaluation trades" surged. In an interview on Thursday, Bessant further emphasized that the repurchase size "could even exceed $4 billion," stressing that "yields do not reflect fundamentals." This move aims to alleviate bond market turmoil caused by widening fiscal deficits and escalating debt, while releasing liquidity, especially during the late summer when trading is thin and competition for corporate bond issuance (including financing for AI infrastructure) intensifies. However, the market reaction was far from one-sided. Yields quickly recovered half of the previous day's losses on Thursday, with the 10-year Treasury yield rising to 4.698% and the 30-year yield to 5.238%, indicating investor skepticism about the sustainability and credibility of the Treasury's intervention. A strategist at CIBC noted that this was more like Bessant "testing the market," and the market was fighting back. Scotiabank's foreign exchange strategist bluntly stated that if the Treasury is unwilling to let the bond market bear the pressure of fiscal sustainability and the Federal Reserve's credibility, then the pressure must be borne by the US dollar. This "devaluation trade" logic has pushed up gold prices in the short term, but if repurchase agreements cannot truly reverse the fundamentals, the basis for gold's rise will also be shaken. Looking deeper, the Treasury's frequent interventions are blurring the boundaries between fiscal and monetary policy. St. Louis Fed President Musaleem explicitly stated that the Fed focuses on the labor market and inflation, formulates policies independently, and is not influenced by debt management. San Francisco Fed President Daly stated that current long-term yields do not provide much signal for policy adjustments and emphasized that "we are still in the early stages." The Treasury's efforts to ease financial conditions may create friction with the Fed's stance of still needing to curb inflation through interest rate hikes; this inter-institutional tension itself constitutes a potential catalyst for gold price fluctuations.

Inflation and Interest Rate Expectations: Oil Prices Add Fuel to the Fire, Gold Prices Caught in a Dilemma

Meanwhile, geopolitical conflicts continue to fuel inflation. As negotiations over the Iranian conflict stalled, market concerns about supply disruptions in the Middle East intensified, causing oil prices to surge more than 2% on Thursday. Brent crude closed at $93.78 per barrel, and U.S. crude at $88.15 per barrel, both reaching near one-month highs. Trump's threat to wage "economic war" against countries supporting Iran further exacerbated market expectations of rising energy prices and overall inflation. The breakeven yields on five-year and ten-year Treasury Inflation-Protected Securities rose to 2.338% and 2.345% respectively, indicating that the market's pricing of future inflation has clearly shifted upward. The release of the minutes from the Federal Reserve's July meeting reinforced the hawkish tone. "Several" policymakers prepared to raise interest rates, and "multiple" officials stated that if inflation does not fall back towards the 2% target, it will be necessary to raise borrowing costs. St. Louis Fed President Musaleem even hinted that he favored supporting a rate hike at the September meeting, stating that financial conditions were "quite accommodative." According to CME Group's FedWatch tool, traders expect a 67.4% probability of no change in interest rates in September, but the probability of a rate hike in December has risen to 67%. This expectation of "short-term wait-and-see, medium-term hawkishness" supports real interest rates, thus putting downward pressure on gold prices. Gold is therefore caught in a typical stalemate between bulls and bears: on one hand, there is the expectation of a long-term decline in real interest rates due to Treasury repurchase agreements and a weak dollar; on the other hand, there is the risk of inflation driven by rising oil prices and the potential tightening of policy by the Federal Reserve. Morgan Stanley analysts gave an optimistic outlook in a report—if the Fed keeps interest rates unchanged, gold prices could break through $5,000 per ounce in 2027, or even earlier, but at the same time, they emphasized that volatility still exists. The core of this judgment lies in whether the trajectory of real interest rates can continue to decline, and whether the "devaluation trade" can evolve from short-term sentiment into a medium- to long-term trend.

The Debt Flood and the Logic of Safe-Haven Investment: The Role of Gold After $40 Trillion

The US public debt surpassing the symbolic threshold of $40 trillion has added a new dimension to the long-term narrative of gold. Bessant attempted to downplay the "magic" of this figure, stating that "hundreds of billions of dollars" in savings could be found through economic growth and measures to reduce waste, fraud, and abuse. He also pointed out that this year's deficit increase stemmed partly from the return of tariffs ruled illegal by the Supreme Court, a practice unlikely to be repeated next year; the immediate deductions from the factory and data center construction boom have also temporarily suppressed corporate income tax revenue. However, rigid expenditures such as Social Security and Medicare, along with rising interest costs (approaching $1.2 trillion in the first ten months of the fiscal year), continue to expand. High long-term yields not only push up government financing costs but also increase borrowing costs for businesses and households—30-year fixed mortgage rates have risen by more than 0.5 percentage points since Trump and Israel's military action against Iran. Against this backdrop, gold's safe-haven and inflation-hedging properties have been reactivated as a traditional store of value and an alternative to fiat currency. The surge in gold prices following Wednesday's buyback announcement is a direct market reaction to "fiscal dominance" and potential currency devaluation. But as the bond market rebounded on Thursday, investors haven't completely abandoned government bonds, and the situation hasn't escalated into an "emergency crisis." Therefore, the rise in gold prices reflects more of a pricing in uncertainty than a bet on a systemic collapse.

Market Outlook: Finding a New Balance Amidst Volatility

In summary, the current high-level fluctuations in gold prices are the result of a balance of forces. The Treasury's repurchase operations provided short-term liquidity and signaling support, but market doubts about its sustainability and fiscal fundamentals limited upside potential. Oil prices and geopolitical conflicts fueled inflation expectations, reinforcing the Federal Reserve's hawkish stance and supporting real interest rates. Furthermore, crossing the $40 trillion debt threshold strengthened gold's safe-haven narrative in the medium to long term. Morgan Stanley's $5,000 target is based on the premise that the Fed maintains its current interest rates; if inflation becomes stickier than expected or fiscal intervention fails, volatility and the risk of a pullback will amplify rapidly. In the coming weeks, the market will closely watch Fed Chairman Warsh's speech at the Jackson Hole symposium—investors want more substantive content than the July press conference, rather than a high-level, obscure repetition. Meanwhile, the actual scale and frequency of subsequent Treasury repurchases, oil price trends, and any developments in the Middle East conflict will all be key variables in the short-term direction of gold prices. In an era where the boundaries between fiscal and monetary policy are increasingly blurred, and the dual pressures of debt and inflation coexist, gold is no longer merely a safe-haven asset, but has become an important window for observing the global macroeconomic order and the credibility of policies. Amidst this high-level standoff, a genuine breakthrough may require clearer policy signals and fundamental verification; until then, volatility and fluctuations will remain the dominant theme. (Spot gold daily chart, source: EasyTrade) At 07:40 Beijing time, spot gold is currently trading at $4524.43 per ounce.