Gold Holds Near Highs as Profit-Taking Meets Treasury Buyback Support

Gold came under pressure from profit-taking following Wednesday's sharp surge, while higher oil prices and relatively hawkish Federal Reserve minutes revived concerns about inflation and the possibility of further rate hikes. However, expectations of lower long-term real interest rates and the possibility of larger U.S. Treasury bond buybacks helped gold recover from its session lows.

The release of the Federal Reserve's July meeting minutes showed that inflation concerns remained significant, with several policymakers remaining open to further rate increases if inflation pressures persist. Markets were pricing in a 67.4% probability of the Fed holding rates unchanged in September, according to the CME FedWatch Tool.

Gold's decline was also limited by comments from Treasury Secretary Scott Bessent, who said the government could potentially increase Treasury bond repurchases to more than $4 billion per issue. Expectations of additional Treasury buybacks supported the prospect of lower long-term real rates, providing renewed support for the non-yielding metal.

Oil prices extended their rally to a more than three-week high as stalled talks over the Iran conflict continued to raise concerns about potential disruptions to Middle Eastern energy supplies. Higher oil prices reinforced inflation risks, creating additional uncertainty around the Federal Reserve's future policy path.

The sharp decline in gold from its intraday high represented largely routine profit-taking after the metal's powerful rally in the previous session, when the Treasury's announcement on larger longer-dated bond buybacks had triggered a sharp decline in U.S. bond yields and the dollar.

Morgan Stanley analysts said they see scope for gold to exceed $5,000 per ounce in 2027, potentially earlier, although they also expect significant volatility along the way.