Gold futures rose more than 1% to reclaim the $4,580 per ounce level for the first time since May, extending a recovery that began on August 5 amid shifting capital flows away from U.S. Treasury bonds.
The move reflects a broader rotation in the market capital cycle, with investors reducing exposure to high-yield Treasuries amid uncertainty over the sustainability of U.S. public debt, which recently surpassed $40 trillion. The shift follows Treasury Secretary Scott Bessent’s announcement of plans to double long-term Treasury bond buybacks, a proposal that drew criticism for addressing symptoms rather than underlying fiscal pressures. Analysts at Evercore ISI and The Wall Street Journal’s Greg Ip argue the intervention could undermine the U.S. reputation for stability and conflict with Federal Reserve efforts to enhance market responsiveness under Chairman Kevin Warsh.
Declining foreign demand for U.S. Treasuries—driven by domestic obligations and de-dollarization efforts—has amplified the impact of yield-sensitive investors such as hedge funds, whose positioning is more responsive to policy shifts than sovereign buyers. The Treasury’s intervention may have tempered the drag from elevated bond yields, which remain near 2007 highs, thereby supporting non-yielding assets like gold.
Physical gold ETFs contributed to the uptrend, with SPDR Gold Shares attracting nearly $2 billion in inflows over the past two sessions. Market participants await the Commitment of Traders report later today for confirmation of bullish futures positioning. As of August 11, non-commercial traders’ net long positions on the Chicago Mercantile Exchange reached their highest since January, exceeding 250,000 contracts—a 25% increase from May lows—while short positions fell to their lowest since 2020 at roughly 33,000 contracts. These developments suggest a rebuilding of speculative leverage following January’s sharp correction.
However, risks to the bullish narrative persist, particularly from geopolitical tensions in the Middle East. The absence of a clear diplomatic or military resolution to the conflict raises the potential for escalation, including disruptions to maritime traffic in the Strait of Hormuz and Bab al Mandab, as well as oil infrastructure. Such scenarios could constrain capital flows into gold, notwithstanding reduced inflation risks and lower yield pressure, as liquidity constraints in the region and Asia weigh on investment demand.
Global investment demand for gold declined over 50% in the second quarter compared to the first, and 46% year-on-year, while jewelry demand fell 5% quarter-on-quarter and 17% year-on-year. Regional declines were pronounced, with jewelry demand dropping 19% in the Middle East, 15% in India, and 25% in the U.S. during the second quarter. Wartime conditions often prioritize liquidity for essential expenses or local currencies over investment allocations, limiting gold’s appeal as a safe haven.
