Market analysts attribute recent spikes in gold and bitcoin prices to growing concerns about the rapidly increasing U.S. government debt, despite the Treasury market’s current stability regarding the nation’s fiscal trajectory.
The U.S. budget deficit expanded to $1.7 trillion in fiscal year 2023, and projections indicate it could swell to $2.6 trillion by 2034, according to the Congressional Budget Office. Concurrently, U.S. government debt held by the public is on course to hit a historic high of 106% of gross domestic product (GDP) by 2028, climbing from 97% in fiscal year 2023. From early 2020 to the present, this debt has surged from $17 trillion to $27 trillion, marking a significant escalation from $5 trillion in 2007.
The unchecked growth in U.S. government debt is capturing greater attention as interest rate payments increasingly consume a substantial portion of the government’s budget, sometimes surpassing expenditures on national defense.
This alarming fiscal trajectory has propelled demand for bitcoin and gold, traditionally viewed as safeguards against inflation and the erosion of the U.S. dollar’s purchasing power.
Brad Bechtel, global head of FX at Jefferies, remarked, “Concerns about the U.S. debt cycle, currency devaluation, particularly of fiat money, underpin the narrative.” He noted that these concerns prompt investors to allocate more resources toward assets such as bitcoin and gold as hedges against the devaluation of fiat currency.
Yields in Treasury debt predominantly reflect Federal Reserve interest rate policy expectations, occasionally influenced by increases in debt supply, though the longer-term fiscal outlook plays a lesser role in the market.
Intermittent Federal Reserve purchases of Treasuries to stimulate economic growth can depress yields and increase the dollar supply. Supply disruptions, record government spending, and loose monetary policy during the COVID-19 pandemic-induced shutdowns in 2020 have fueled persistent inflationary pressures.
Lawrence H. White, economics professor at George Mason University, emphasized that the mounting debt and deficit are particularly concerning given the current economic conditions of full employment, a period traditionally associated with budget surpluses. He warned of further debt escalation during the next recession.
Beyond fiscal concerns, significant factors driving interest in bitcoin and gold include the introduction of new exchange-traded funds (ETFs) for bitcoin and anticipation of a halving event, which historically bolsters bitcoin prices. Meanwhile, the surge in gold prices is propelled by expectations of central bank rate cuts and purchases by foreign central banks diversifying their reserves, partly as a hedge against inflation and geopolitical risks.
Despite the mounting fiscal challenges, the Treasury market indicators currently do not reflect a deteriorating fiscal outlook. Nicholas Colas, co-founder of DataTrek Research, noted that several indicators, including 10-year Treasury yields trading below those on three-month notes and real 10-year yields comparable to levels from 2003–2007, suggest confidence in the dollar’s reserve currency status and the safety of Treasuries.
However, some analysts, such as Michael Hartnett from Bank of America, warn that recent highs in gold and tech stocks signal the need for policies like yield curve control to prevent a potential debt crisis. In yield curve control, central banks purchase bonds to maintain a target interest rate, thereby reducing government borrowing costs.
Despite these warnings, Treasury investors continue to view Treasuries as relatively safe assets, with ample opportunities for investment.
