Today’s US Treasury Intervention in Bond Markets is a Buy Recommendation for Gold. Here’s Why.

In order to stop the recent rapid rise in bond yields, Treasury Secretary Scott Bessent announced today that the US Treasury would double its buyback program for long-dated bonds between durations of 10-30 years. This effectively puts a bottom in on the price of Treasuries right at a time when the pendulum was swinging towards higher yields.

As with all market manipulations, there are always ramifications that can ripple through financial markets. The Treasury's efforts are like a drug dealer buying his own stash to keep prices up because all of his buyers are either dead or in rehab. Today's announcement is no different.

First, let's look at the mechanics of this program. The Treasury will buy $4 billion of long-dated bonds, effectively preventing yields from normalizing (rising) through market forces. This artificially holds down yields and distorts the real value of US Treasury prices. 

To buy these bonds, the Treasury will use US dollars, but where will it get those dollars, given the government is running on deficit spending? In a word, it’s going to print them; and in other words, quantitative easing.

This has sent a shockwave throughout the financial markets. First and foremost, printing more dollars makes the dollars in circulation and those the Treasury will pay back to bondholders less valuable. That's why we have seen a precipitous drop in the dollar ($DXY) today.

Second, the dollar's worth affects the price of many things, including commodities like oil, grains, and gold. As the dollar's purchasing power decreases, it costs more dollars to buy hard assets.

Typically, in times of distress and market uncertainty, investors run to two places: bonds and gold (GCV26), through the dollar – but today's action in the dollar and gold is a loud "no confidence" vote in the bond market.

Secretary Bessent may have stopped the bleeding in the yield curve, but he has opened the door to dollar-priced inflation in commodities, particularly gold. Exchange one problem for another, and like our drug dealer who's using his own product, eventually no good will result… unless you were long gold.

– John Rowland, CMT, is Barchart’s Senior Market Strategist and host of Market on Close.

On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.