Gold price hovers at three-month high on dollar weakness, Treasury bond buyback plans

Gold prices fell on Tuesday morning, but hovered around their highest level in more than three months, supported by a weaker U.S. dollar and as the U.S. Treasury's bond buyback plans.

Spot gold fell 0.4% to $4,632.39 per ounce, touching on its highest since mid-May with UOB forecasting the metal is on track "for its strongest monthly gain since September 1999." The yellow metal has gained over 15% so far this month.

Gold futures were down by 0.3% at $4,686.20, but also hovered around a three-month high.

Gold

A softer dollar makes greenback-priced gold attractive to holders of foreign currencies, while lower Treasury yields reduce the opportunity cost of buying bullion.

The dollar index has lost 0.8% so far this month, and while Treasury yields have been elevated for the better part of August, government plan to buyback bonds has managed to keep a lid on them — down 3 basis points this month.

Investors' focus will also be on the upcoming speech by U.S. Fed Chair Warsh ahead of the Jackson Hole Symposium later this week, as they look for more clues on the outlook for interest rates.

While a hawkish Warsh speech will likely bring the ongoing gold rally to a halt, a dovish surprise at Jackson Hole will be ultra-bullish for gold, "as the market will not only continue to price out Fed rate hikes but also refocus on the debasement trade amid renewed concerns on Fed independence and US debt sustainability issues," Citi said in a note.