(Source: Financial News)

JPMorgan said this is only a temporary fix rather than a cure: the U.S. economy is close to full employment, yet there is still a 6% fiscal deficit.

On August 20, the spot gold price fell by 0.98% to $4,478.68 per ounce; the spot silver price fell by 0.51% to $66.64 per ounce.

On August 19, the U.S. Department of the Treasury announced that it would expand the scale of repurchase operations for longer-dated Treasury securities. The liquidity-support repo operation size for U.S. Treasuries with maturities of 10 to 30 years would be increased by at least one-fold. This led to a decline in yields on U.S. long-term Treasuries, and the U.S. dollar index fell in tandem, providing direct price support for gold denominated in U.S. dollars. As a result, international gold prices surged on August 19, breaking above $4,500 per ounce, which in turn lifted stocks in the gold sector.

However, JPMorgan strategists warned that the market may view the Treasury’s unexpectedly timed efforts to suppress long-term borrowing costs as lacking credibility, which could raise the term premium and bond yields over time.

The U.S. Department of the Treasury said on Wednesday that it will at least double the size of its bond repurchase program to provide "greater liquidity support," a move that would lower U.S. long-term Treasury yields. But JPMorgan said the measure is only a stopgap: the U.S. economy is close to full employment, yet there is still a 6% fiscal deficit.

Strategists including Jay Barry wrote, "Without a genuine fiscal adjustment, we worry that the market will view this move as lacking credibility. If the Treasury becomes more opportunistic in debt management and further deviates from its 'routine and predictable' principles, this could lead to higher term premia and yields." The size of the U.S. Treasury debt has already surpassed $40 trillion, making it harder for policymakers to control borrowing costs, while the U.S. government continues to issue more Treasuries. A market survey showed that about 60% of respondents believe the U.S. debt situation will continue to deteriorate until it triggers a major crisis.