Gold’s debt-driven rally

GOLD prices have been on a roller-coaster ride since the Iran war broke out.

Instead of heading higher on geopolitical risks, gold turned lower toward the US$4,000-a-troy-ounce level before breaking out in August to trade at around US$4,600 at last look, up some 15% in a single month.

Analysts argue that the precious metal is poised to head towards US$6,500, driven by bond-market fragility and fears about the US$40 trillion US federal debt “doom loop”.

Investors needed a catalyst, and they appear to have found one in the US Treasury’s latest defensive manoeuvre.

Treasury Secretary Scott Bessent’s plan to double buybacks of 10-to-30-year bonds to artificially cap rising yields has been widely criticised as a “band-aid on a bullet hole”.

Lacking spare cash due to massive deficits, the Treasury must fund these buybacks by issuing more short-term T-bills, escalating rollover risk and public exposure to high short-term interest rates.

Ultimately, if the US Federal Reserve is forced to monetise this debt, it risks triggering a sharp inflation spike and undermining the global value of the US dollar.

This dynamic reinforces gold’s role as a premier non-counterparty asset and purchasing-power hedge.

However, the road upward is not without pitfalls.

Gold could face sharp corrections if the market experiences a severe deflationary shock or a global liquidity crisis.

Genuine, large-scale fiscal consolidation that credibly bends the US debt trajectory would dismantle the self-reinforcing debt cycle that underpins gold’s current structural bid.

Investors may therefore consider planning exits during gold’s current price advance rather than waiting for the peak.