The US Treasury Department announced on Wednesday (August 19) a significant expansion of its long-dated Treasury buyback operations, immediately triggering a chain reaction across financial markets: the 30-year Treasury yield plunged from near 19-year highs, the dollar index softened in tandem, and international gold prices surged past the $4,500 per ounce mark, reaching the highest level in over two and a half months since early June. Buoyed by this momentum, the Bank of Taiwan’s gold passbook selling price soared to NT$4,624 per gram, also refreshing a two-month high.

The Treasury’s unexpected move effectively injected substantial dollar liquidity into the market. As dollar supply increases and its marginal value comes under pressure, dollar-denominated gold directly benefits. At the same time, official buying that forcefully suppresses long-dated Treasury yields dramatically reduces the opportunity cost of holding “non-yielding assets” like gold, attracting capital flows from the bond market into the gold market.

Spot gold surged 3.6% on Wednesday, settling at $4,487.91 per ounce (approximately NT$140,000), with an intraday peak of $4,499.20 — the highest since June 4. US December gold futures rose 2.8% to $4,545.30 per ounce. Silver strengthened in tandem, climbing 3.69% to $65.64 per ounce.

Buyback Size Doubles, Yields Plunge

The US Treasury Department announced that beginning September 9, its buyback operations for 10- to 30-year Treasuries would double to $4 billion (approximately NT$130 billion) or more. Treasury officials emphasized that the decision was intended to provide greater liquidity support rather than to address a specific market stress event.

Prior to the announcement, the 30-year Treasury yield had touched its highest level since 2007 at approximately 5.34% on Tuesday. Following the Treasury’s buyback announcement, the 30-year yield quickly fell more than 0.08 percentage points intraday to around 5.2%; the 10-year yield also declined to 4.660%.

Robert Gottlieb, former head of precious metals at Koch Supply and Trading, stated bluntly: “The US Treasury’s announcement was a complete surprise to the market and is very bullish for gold. Lower long-dated Treasury yields, combined with the potential for further dollar weakness, will both enhance gold’s appeal.”

TD Securities noted in a client report that the Treasury’s expanded liquidity-support buyback operations have injected “a shot in the arm” for the precious metals market. The firm believes that although gold investment flows have weakened recently, with the Treasury providing liquidity support, the Federal Reserve potentially choosing to overlook energy price shocks, and stagflation narratives gaining traction, gold investment flows could quickly return, ultimately driving real interest rates lower — a favorable environment for non-yielding assets like gold.

Bank of Taiwan Gold Passbook Follows Higher; July Dip Buyers Up Over NT$50,000

As international gold prices surged, the Bank of Taiwan’s gold passbook selling price climbed to NT$4,624 per gram, refreshing a two-month high since early June. Looking back to July 1 of this year, hawkish Federal Reserve rhetoric that fueled expectations of delayed rate cuts, combined with a surging dollar index and Treasury yields, plus a wave of short-term profit-taking, pushed the Bank of Taiwan’s gold passbook down to a low of NT$4,092 per gram.

An investor who deployed approximately NT$410,000 (approximately $13,000) at that low point to purchase 100 grams of gold and held through today would see their position value surge to over NT$460,000. In just two months, the potential profit exceeds NT$50,000 (approximately $1,600).

The Bank of Taiwan’s latest report noted that the Bank of Korea resumed gold purchases after a 13-year hiatus, viewing them as part of “medium- to long-term foreign exchange asset allocation.” This signals that institutional and central bank-level capital is treating gold as a safe-haven and long-term defensive asset, providing solid long-term downside support for prices. Additionally, South Korea has introduced its first VAT exemption on gold bar withdrawals in 60 years, demonstrating an official policy stance that is highly friendly toward gold holdings.

However, the Bank of Taiwan report also cautioned that in the near term, with most interested buyers already positioned, the lack of fresh buying momentum means gold is more likely to consolidate around $4,500 or even pull back in a washout before any further advance.

Macro Backdrop: Stagflation Concerns and the Rate Path

The macro backdrop for this gold breakout is a market reassessment of the Federal Reserve’s policy trajectory. According to the CME FedWatch tool, investors currently assign roughly a 65% probability that the Fed will hold rates steady at its September 15–16 meeting. A recent string of soft economic data has weakened the case for further rate hikes, while the Fed’s July meeting minutes showed some officials remain vigilant on inflation and even considered additional tightening.

Paradoxically, slowing economic growth combined with rising energy prices has reignited “stagflation” discussions in the market. If the Fed is unwilling to tighten further amid rising energy prices, real interest rates could fall, benefiting gold. Nikos Tzabouras, senior analyst at Tradu.com, pointed out that while gold prices may oscillate between geopolitical frictions and Fed policy in the near term, the macro environment for gold is improving as price pressures ease, potentially breaking above the $4,500 mark and exiting bear market territory.

On the technical front, gold broke above its 100-day moving average at approximately $4,381 on Wednesday and briefly approached the $4,500 level. If gold can hold firmly above the 100-day moving average, technical traders may further add long positions, creating a mutually reinforcing dynamic between fundamentals and technicals. The dollar index fell approximately 0.9% on the same day to 98.70, further boosting dollar-denominated precious metals prices.

Central Bank Buying and Long-Term Support

Gold has long been viewed as a safe-haven asset with both inflation-hedging and currency-debasement protection properties. Central banks worldwide, particularly those in emerging economies such as China, India, and Turkey, have been steadily increasing their gold reserves in recent years. According to data from the World Gold Council, global central banks purchased a combined 1,136 tonnes of gold in 2022, valued at approximately $70 billion (approximately NT$2.2 trillion), setting the highest annual purchase record in history.

When the dollar weakens, gold prices tend to rise, offering investors and central banks opportunities for asset diversification. The Bank of Korea’s resumption of gold purchases after 13 years, coupled with the VAT exemption policy on gold bar withdrawals, further confirms the trend of institutional and central bank-level capital viewing gold as a medium- to long-term defensive asset.

Precious MetalAugust 19 PerformanceKey Price LevelSpot Gold+3.6%$4,487.91/ozGold Futures (December)+2.8%$4,545.30/ozSpot Silver+3.69%$65.64/ozSpot Platinum~+4%$1,779.89/ozSpot Palladium+2.8%$1,326.13/oz

Note: Data reflects August 19 intraday or closing prices; gold futures refer to the US December contract.

Looking ahead, market focus will center on the Federal Reserve’s subsequent policy signals and the actual execution of the US Treasury’s buyback operations. If long-dated yields remain contained and the dollar stays weak, a successful conversion of the $4,500 level from resistance to support would lay the foundation for the next leg higher. However, near-term profit-taking pressure and overbought technical signals could still cause gold to experience choppy pullbacks before breaking above its previous highs.