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You probably saw the recent spike in gold.
Big move — and it wasn’t random. The dollar weakened after the Treasury Secretary announced plans to buy back long-dated bonds, including maturities from 2045 through 2054.
They’re careful to say it isn’t quantitative easing. But when the Treasury buys back bonds, it can improve liquidity in the Treasury market and put downward pressure on yields. If yields fall as a result, that can take some strength out of the dollar. A weaker dollar can be jet fuel for gold and silver.
It also makes imports more expensive, adding to inflationary pressure. That’s one reason gold, silver, platinum and palladium have historically attracted capital when investors worry about the purchasing power of paper currencies.
The Bigger Cycle Still Favors Metals
Even outside this bond buyback news, the fundamentals in metals have been strong for a while.
From September through January, silver and gold made exceptionally fast moves. After a run like that, some cooling and consolidation are normal. Metals also tend to go through seasonal stretches when prices are weaker or simply move sideways, even when the long-term case remains intact.
That’s important because a pause doesn’t necessarily mean the cycle is over. Historically, precious metals have often moved in stages: A sharp advance, a period of consolidation and then another leg higher if the underlying monetary and economic pressures persist.
Those pressures haven’t disappeared. Federal deficits continue to climb and interest costs consume a growing share of government revenue. Financing that burden can eventually require more borrowing or money creation — both of which raise questions about the dollar’s long-term purchasing power.
Higher interest rates have complicated the picture. When yields rise, global capital can move into dollar-denominated assets in search of better returns. That supports the dollar and creates a headwind for metals. But if rates fall while fiscal concerns remain, that headwind can reverse quickly.
Why Gold Still Stands Apart
Gold isn’t just another risk asset. Stocks depend on corporate earnings, bonds depend on an issuer’s ability to repay and currencies depend on confidence in governments and central banks. Gold carries no corporate credit risk and has served as a store of value across monetary regimes.
That distinction matters when markets become volatile. Geopolitical conflict, banking stress, heavy government borrowing and uncertainty over monetary policy can all push investors toward assets outside the traditional financial system. Gold has repeatedly filled that role because it’s globally recognized, liquid and scarce.
On the day of the Treasury announcement, longer-dated Treasurys rose, yields came down, the dollar dropped and gold and silver moved higher. That kind of coordinated move suggests something bigger may be shifting.
I’m not saying metals will go straight up without another breather. But the historical pattern, seasonal setup and macroeconomic backdrop are beginning to point in the same direction.
If you’ve been sitting on the sidelines with metals, this may be the environment to rethink that.
Geof Smith
Geof Smith Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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Disclaimer: Since 12/05/2024, the trading approach discussed today has published 66 trade alerts. 65 of 68 have returned as winning trades, for a 95.6% win rate. The average return per trade, winners and losers combined, has been 12.84% on an average holding period of 10 days. With a $5,000 starting stake, every trade targets about $841 in returns, and every trade you see today will be based on that $5,000 starting stake unless otherwise stated.
