Weekly Buzz: Gold jumped 4% – and the move started with bonds

For weeks, the pressure point in markets has been long-dated government bonds. Investors have been demanding more compensation to lend to governments long term, wary of heavy debt loads and sticky inflation. Then gold jumped 4% in a single day. Here's the chain of events.

What’s going on here?

A selloff pushed the 30-year US Treasury yield above 5.33% on 18 August, its highest since 2007, and long-term borrowing costs also rose across Europe and Japan. On 19 August, the US Treasury stepped in: announcing that it would double regular buybacks of its longest-dated bonds, to a minimum of $4 billion USD per operation.

Buybacks work like this: the Treasury purchases older bonds directly from investors, which gives the market a predictable buyer, and shrinks the pile of long-term debt. With less supply to digest, investors demand a smaller premium for holding long bonds. With that, the 30-year yield had fallen about 0.1 percentage points to 5.18% and the 10-year had eased to 4.64% by the close on 19 August, and yields in Europe followed.

Gold investors took note: gold jumped 4% that day to close around $4,520 USD an ounce, with silver up more than 5%. Gold pays no income, so its cost is what you give up by not holding bonds instead. This can be measured by the real yield (what a Treasury bond pays after expected inflation). When real yields fall, holding gold gets cheaper. A softer US dollar, at its weakest in three months as of 19 August, helped too, making gold cheaper for buyers outside the US. The US Federal Reserve also added to the effect: it held rates steady at 3.50% to 3.75% at its 19 August meeting. With the Fed on pause and the Treasury buying, the pressures on yields all pointed the same way, down.

What’s the takeaway?

Buybacks manage liquidity, but they don't shrink overall debt. Governments still need to borrow, so the forces that pushed long-term yields up in the first place haven't gone away. That's the long-term reason to hold gold: it's a store of value that doesn't depend on any government's promise to repay.

This gold rally showed the shorter-term reason as well: yields fell and gold moved within hours. That's the case for holding gold as a diversifier, rather than a trade. In a diversified portfolio, gold can anchor your portfolio’s performance, even as other markets wobble.

(For a diversified portfolio with gold as part of its allocation, all managed to your risk level, see General Investing.)

In Other News: The S&P 500 delivered some of its best results in years

About 88% of S&P 500 companies have delivered their quarterly updates, with 86% beating earnings forecasts. Now, beating forecasts isn’t particularly unusual: roughly three-quarters of the index clears it in a typical quarter. That 86% beat rate, however, is the highest since 2021, and expectations had actually risen going into the season.

For much of the past year, the market's strength rested on a handful of tech giants. This quarter, that strength broadened: 10 of the 11 sectors in the S&P 500 grew profits, and the fastest-growing wasn't tech, but energy. Oil prices averaged around $92 USD a barrel over the quarter, up 45% from a year earlier. That helped energy firms grow revenue by more than 40%, quicker than any other sector.

The S&P 500's net margin – the share of revenue companies keep after costs – reached 16.9%, the highest in FactSet's records going back to 2009. Two names flattered that number: Alphabet and Amazon each booked huge paper gains on their stakes in private AI companies. Even setting both aside, the margin lands at a strong 15%.

Some key names have yet to report: Nvidia, for example, doesn't report until late August. But if you're invested in a broad S&P 500 fund, you've just had exposure to a genuinely strong quarter. Owning the whole index means owning the energy producers that led the quarter, the industrial firms supplying the ongoing AI buildout, and Big Tech itself. It’s diversification in action: you benefit from growth wherever it turns up.

Curious what makes it into the index, and when? We're sitting down with S&P Dow Jones Indices on 1 September. Details below.

(See Flexible Portfolios if you want an easy and expert-vetted way to invest in the S&P 500.)

Past performance is not an indicator of future returns. These articles were written in collaboration with Finimize.