Gold Tops $4,600, USD Steady; Treasury Buyback Optimism Fades

Market Wrap-up: Dollar Holds Steady, Gold Climbs as Treasury Buyback Optimism Fades

Markets traded largely sideways on Friday but still closed out a week marked by notable volatility. Specifically, this came right after the US bond market sell-off starting on August 18. The very next day, August 19, the US Treasury Department announced a plan to more than double the size of its government bond buyback operations, a move aimed at cooling the bond market, which caused yields to fall sharply.

A strong rally immediately followed across most markets, with US stock indices including the Dow Jones, S&P 500 and Nasdaq all rebounding together. The USD fell 0.8%, providing upward momentum for other major currencies such as the Euro, British Pound, and Australian Dollar. In addition, gold prices also jumped about 3.4% and broke above the 4,500 USD/ounce threshold.

However, by August 20, the market grew skeptical about the effectiveness of long-term Treasury bond buybacks. This caused the 10-year US Treasury yield to climb back above the level seen just before the Treasury Department's announcement.

Trading markets became more cautious throughout Thursday and Friday of last week. By the close of Friday, the US Dollar Index (DXY) ended the week nearly unchanged from Thursday, holding near 98.80, even as Friday's preliminary Purchasing Managers' Index (PMI) surveys showed US activity was still accelerating.

Meanwhile, spot gold prices continued to rise 2.3%, reaching 4,619.57 USD/ounce. For the week as a whole, gold prices climbed about 5%.

US stock indices also rebounded on Friday, but this was not enough to reverse the week's overall decline. The S&P 500 lost 1.4%, while the Nasdaq fell 2%, ending a three-week winning streak. The Dow Jones dropped 0.9%, marking its second consecutive weekly decline.

Meanwhile, in the energy market, oil prices were nearly unchanged in Friday's session, closing out the past week with a gain of more than 5%. One signal that may have made the market hesitant was Iranian President Masoud Pezeshkian signaling that Tehran wants the war with the US to end soon.

This week, investor attention will turn to Fed Chair Kevin Warsh's speech at the Jackson Hole conference on August 28, where markets expect further signals on the interest rate outlook, bond yield developments, and the issue of central bank independence.

In addition, the market is also preparing a series of other important data releases, including the Core PCE Price Index, the Fed's preferred inflation gauge, Preliminary GDP, and the Preliminary Benchmark Payrolls Revision.

DXY:

Key takeaway:

• The dollar index closed the week virtually unchanged near 98.80, holding steady even as Friday's preliminary US PMI data pointed to accelerating activity.
• Wednesday's Treasury buyback announcement triggered a sharp 0.8% drop in the dollar, but skepticism over the program's effectiveness on Thursday helped USD stabilize into the weekend.
• The dollar's failure to extend losses despite strong PMI data suggests markets remain focused on Fed independence and rate-path signals rather than incoming data surprises.

Technical Outlook:

• Daily Bias: Bearish with Rebound Potential
• Support: 98.55  
• Resistance: 99.29  

Gold:

Key takeaway:

• Spot gold surged 2.3% on Friday to 4,619.57USD/ounce, capping a roughly 5% weekly gain, its strongest week in recent memory.
• The rally was fueled by the Treasury's buyback plan crushing yields, with gold briefly clearing 4,500 USD/ounce before extending further as bond-market doubts persisted.
• Gold's continued climb even as yields partially retraced highlights safe-haven demand tied to Fed independence concerns and upcoming Jackson Hole risk.

Technical Outlook:

• Daily Bias: Bullish with Correction Risk
• Support: 4,594
• Resistance: 4,656

WTI:

Key takeaway:

• Crude was little changed on Friday but still closed the week up more than 5%, one of the stronger weekly performances across asset classes.
• Comments from Iranian President Masoud Pezeshkian signaling Tehran's desire for an early end to the conflict with the US injected caution into the rally, capping further upside.

Technical Outlook:

• Daily Bias: Bearish
• Support: 84.82  
• Resistance: 87.53

Dow Jones:

Key takeaway:

• The Dow fell 0.9% on the week, marking its second consecutive weekly decline despite a Friday bounce.
• S&P 500 dropped 1.4% and Nasdaq fell 2%, with Nasdaq's decline ending a three-week winning streak.
• Early-week gains from the Treasury buyback announcement were erased as bond-market skepticism resurfaced on Thursday, dragging risk sentiment lower into the weekend.

Technical Outlook:

• Daily Bias: Bullish with Correction Risk
• Support: 53,116    
• Resistance: 53,347

Calendar Watch This Week:

• Aug 28 - Jackson Hole: Fed Chair Kevin Warsh speaks, with markets watching for signals on the rate outlook, yield trajectory, and central bank independence.
• Core PCE Price Index: The Fed's preferred inflation gauge, due this week.
• Preliminary Q GDP: Quarterly growth data release.
• Preliminary Benchmark Payrolls Revision: Key labor-market data point likely to shape rate expectations heading into Jackson Hole.

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