Paved with good interventions

A bumper August

A fierce August rally took gold up 13% to end the month at US$4,563/oz. It was the third highest monthly return in a quarter century, narrowly short of the 14% observed in January 2026, and was echoed across currencies (Table 1).

ETF flows were strong in August, with contributions across the board. Europe narrowly pipped the US, recording inflows of US$7.9bn (54t), followed by North America with US$7.8bn (53t); Asian gold ETFs recorded US$2bn (13t) of inflows.

Paved with good interventions

• The recently announced US Treasury buybacks are officially about liquidity.1 But some are seeing them more as financial repression: an attempt to stop yields rising2
• Real assets like gold will likely continue to benefit, reflecting investor concerns over growing deficits and debt, until a credible plan to deal with them is formulated.

Regardless, the story has been hogging headlines ever since. And a strong public riposte to the Treasury’s intervention from investor Stanley Druckenmiller likely echoed a wider frustration with a US administration unwilling to apply more than ‘sticking plasters’ to a much more serious problem.6

We look at weekly data from 2000 and the moves in nominal yields, real yields, term premium, dollar index and gold.

Under each theme, nominal yields are filtered to be ‘fixed’ within a range as we assume that intervention succeeds on its own terms. What differs is the composition beneath: whether the move comes out of the term premium, or out of real rates while inflation compensation builds, or out of the US dollar on capital outflows. Chart 2 shows our assumptions and the filters we have used.

Theme one: Credible intervention

Theme two: Confidence-eroding intervention

• Pinned nominal yields are quite unusual when the other components move: of 1,443 weeks since 2000, only 30 fit the credible theme and 20 the confidence-eroding one
• Unsurprisingly, gold fares far better under a confidence-eroding intervention than a credible one. Falling real yields and a weaker dollar are typically bread and butter to gold’s short-run returns. But this does underline gold’s value as a hedge against precisely that risk
• A successful intervention is not necessarily bad for gold. Mechanical success doesn’t solve the underlying problem – and through moral hazard could make it worse. A compressing term premium on its own is insufficient to dent gold’s excess return
• However, one warning shot across the bow is that the two weakest returns in the credible theme sample – May 2014 and July 2015 – coincided with a US deficit that had fallen to around 2.5% of GDP from 4% eighteen months earlier. Two observations prove little, but capping yields alongside genuine fiscal restraint represents a near-term risk for gold, even if remote.

In summary

While the preceding analysis is focused on the US, rising yields – particularly given high debt burdens – are a global concern (Chart 4). Like a game of whack-a-mole, a temporary solution here could worsen the problem elsewhere as investor flows look for a home. Next on the agenda is a more likely Fed hike in September (Chart 5). Solid economic data and billowing inflation fears had suggested it in June, before softer data allayed those fears. But now expectations have see-sawed on a pervasive continuation of the US-Iran conflict, bolstered by Fed Chair Warsh’s hawkish comments and the recent Jackson Hole Symposium.

What a hike achieves isn’t clear and on paper wouldn’t be great for gold. We laid bare some of the possible dynamics in an earlier commentary, noting that it is not the yield move itself but what it embeds that matters. A hike could restore policy credibility and flatten the curve. That’s the sort of scenario that could confound the simple rule that hikes are always bad for gold. Let’s see.

You can learn more in our August gold ETF report here.