Gold Hits 3-Month High After Rebound, Wall Street Sees More Gains by Year-End

Gold Hits Highest Level in Three Months

Wall Street Sees More Upside by Year-End

Weak-Dollar Fears Revive Buying

After Sharp Run-Up, Risk of Technical Pullback Remains

Gold has reversed a six-month decline and climbed to its highest level in three months. The rebound came as the U.S. Treasury's expanded buybacks of long-term bonds fueled concern about the dollar's value, while buying by central banks and private investors also returned. Wall Street is cautioning that the metal may be overheated in the short term, but continues to project further gains over the medium to long term.

On Aug. 26, December gold futures on the New York Mercantile Exchange rose as high as $4,700.6 a troy ounce, the highest since May. Gold later gave up some gains from the session high as international oil prices fell overnight and the rise in long-term bond yields eased. Even so, the metal has climbed nearly 16% this month. U.S.-listed gold mining stocks have jumped 32% in August alone.

After breaking above $5,500 earlier this year, gold prices slumped as concerns over higher interest rates, the war in Iran and a surge in oil prices hit at once. During the stock-market correction in June and July, the metal was caught up in leveraged position liquidations and fell back into the $4,000 range. What changed this month was renewed conviction in a weaker dollar. Mark Haefele, chief investment officer at UBS, said on Aug. 26 that the Treasury's expanded buybacks had reignited investor interest in moving out of the dollar by stoking concern over the long-term fiscal outlook. Gold could rise further as a beneficiary of de-dollarization.

Ray Dalio, founder of Bridgewater Associates, said the U.S. could face a debt crisis in as little as three years and recommended allocating 10% to 15% of assets to gold.

Physical demand for gold is also increasing. The People's Bank of China added 20 tons to its gold holdings in July, the largest increase in about three years. Wells Fargo maintained its year-end gold price target of $4,900 to $5,100, citing inflows into gold exchange-traded funds and a recovery in central-bank buying.

The speed of the recent rally has also prompted growing warnings about the risk of a technical decline. Goldman Sachs said bullish bets on gold had built up quickly, leaving the metal vulnerable to a steeper drop if negative catalysts emerge. The bank identified the Jackson Hole meeting scheduled for Aug. 28 as a key variable.

Binn Nan-sae