The Next Trillion in Debt Matters More to Gold Than the Fed's Next Rate Move

Gold is feeling pressure from the looming 25-basis-point rate hike, since higher rates lift bond yields and the opportunity cost of holding non-yielding assets. Yet the bigger U.S. problem is not short-term monetary policy but the loss of control over the Treasury market.

The Treasury bought $5.1 billion of long-dated bonds this week, yet the 10-year yield still climbed to 4.97 percent, a three-year high, with 5 percent now seen as imminent. Sovereign debt has topped $40 trillion and annual debt-service costs already exceed $1 trillion.

President Trump pledged to send $5,000 to every adult American if Republicans keep the Senate after the midterms—an extra trillion dollars added to the debt. With fiscal pressures mounting, the Fed’s ability to hike further is constrained, making the trajectory of the next trillion in borrowing a greater concern for gold investors than the next 25 basis points.