Gold Holds Near Three-Month High as Oil, Treasury Yields Decline

International gold prices held near a three-month high as easing tensions in the Middle East pushed down oil prices and US Treasury yields.

Bloomberg reported on August 25 that spot gold rose 0.1% from a day earlier to $4,659.52 an ounce, leaving bullion close to the three-month high reached in the previous session. Gold has climbed for five straight trading days and is up more than 7% over the past week.

The latest rally gained momentum after the US Treasury expanded its long-dated bond buybacks. As the US government stepped up market intervention to lower its borrowing costs, the so-called debasement trade returned to the spotlight, with investors buying hard assets such as gold on concern over fiscal deficits and a weaker dollar.

Easing tensions in the Middle East also supported gold. Iran and Oman are discussing a temporary joint maritime corridor to resume shipping through the Strait of Hormuz, helping send oil prices lower. US Treasury yields also fell 5 to 7 basis points across maturities. Lower energy prices can ease inflation pressure and reduce the need for further rate increases by the Federal Reserve, offering support for gold.

Susan Collins, president of the Federal Reserve Bank of Boston, said she currently supports keeping the benchmark interest rate unchanged if inflation continues to slow toward the Fed's 2% target. Higher rates typically reduce gold's appeal because the metal does not pay interest.

Markets are now focused on Federal Reserve Chair Kevin Warsh's Jackson Hole speech and the US personal consumption expenditures price index. Warsh is scheduled to deliver his first major speech since taking office at the Jackson Hole Economic Policy Symposium on August 28. The PCE inflation reading due before then is also a key gauge of the direction of US monetary policy.