Precious metals have emerged as one of August's standout trades, recovering ground lost earlier in the year. Gold has climbed back to around $4,466 an ounce, up 11% this month, while silver has surged even more sharply, gaining 16.5% to trade near $66. The rally marks a sharp reversal from the steep declines seen in the first half of the year.
Gold reached an all-time high of $5,598 an ounce on 28 January, only to slide roughly 30% to about $3,942 by the end of June. Since that low, the metal has rebounded, with most of the gains concentrated in August. Silver followed a similar pattern, hitting a record $121.65 on 29 January before tumbling 55% to around $54.70 by mid-July. Its subsequent recovery has been even more pronounced, though it remains down over 7% year-to-date.
US debt and bond market jitters
The latest leg higher in precious metals gathered pace this week after the US Treasury announced it would double the size of its buybacks of 10- to 30-year debt to at least $4 billion (€3.4 billion) per operation starting 9 September. The move was aimed at calming a jittery bond market, where the 30-year Treasury yield had climbed to its highest level since 2007 before easing on the news.
Hours before the announcement, separate figures confirmed that the US national debt had topped $40 trillion (€34.4 trillion) for the first time—roughly two years ahead of the Congressional Budget Office's projections. The combination of record debt and a softer dollar has revived talk of the so-called dollar debasement trade, the theory that a growing debt pile erodes confidence in a currency over time.
Weak US jobs and retail sales data, alongside soft inflation figures, also prompted traders to pare back expectations of a September rate hike. According to CME FedWatch data, the probability of a hike has fallen from above 50% to roughly one in three.
For European investors, the precious metals rally is a reminder of the interconnectedness of global markets. As US debt tops $40 trillion, the implications ripple across the Atlantic, affecting everything from the euro-dollar exchange rate to the cost of borrowing for EU member states.
The dollar's decline has been particularly notable, with the greenback falling sharply against the euro and other major currencies. This has made dollar-denominated assets like gold and silver more attractive to European buyers, who have been increasing their exposure to safe havens amid geopolitical uncertainties and concerns about global growth.
Analysts point out that the current environment bears similarities to previous periods of dollar weakness, when investors sought refuge in hard assets. However, they caution that the volatility in precious metals could persist, given the unpredictable nature of US fiscal policy and the Federal Reserve's next moves.
For now, the rally in gold and silver appears to be driven by a combination of technical factors and fundamental concerns. The oil prices climb following the Treasury's buyback plan has also contributed to a broader risk-on sentiment, but the underlying debt worries remain.
As European policymakers watch these developments, the focus will be on how the US manages its fiscal trajectory and whether the Federal Reserve can navigate a soft landing without triggering further market turbulence. For investors across the continent, the message is clear: the era of cheap money and stable currencies may be giving way to a more uncertain landscape.
