Washington's efforts to stabilize the Treasury market could ultimately prove futile, leaving gold's long-term outlook largely unaffected. With US government debt surpassing $40 trillion and annual interest expenses exceeding $1 trillion, Treasury yields — representing the government's borrowing costs — have climbed to multi-decade highs. The deteriorating US fiscal position is forcing investors to demand higher yields to compensate for potential long-term holding risks, with long-dated US Treasuries now viewed as a "time bomb" of uncertainty.
In an attempt to ease the selling pressure in the bond market, Treasury Secretary Bessent announced on Wednesday that the quarterly cap for Treasury buybacks would double to $4 billion. The 10-year yield initially fell noticeably that day, but by Thursday it had climbed back to 4.7%, erasing all of Wednesday's losses. This quick reversal highlights the market's skepticism about whether the buyback plan can meaningfully address the underlying problem. US stocks and gold both retreated simultaneously overnight.
This surprise announcement of a doubled Treasury buyback plan shares notable similarities with the coordinated US-Japan intervention in the yen exchange rate at the end of July. For one, both actions bear the fingerprints of Bessent's maneuvering. More importantly, however, neither intervention can fundamentally resolve the core issue at hand. An additional $10-plus billion in quarterly bond repurchases is a drop in the bucket compared with the tens of trillions of dollars in outstanding national debt. Similarly, a currency intervention worth hundreds of billions of dollars pales in comparison with the trillions of dollars traded daily in the USD/JPY market.
These interventions effectively send a strong signal to short-sellers of Treasuries and the yen, potentially alleviating market pressure in the short term. But ultimately, they only treat the symptoms, not the root cause. More critically, the increasing frequency of intervention actually underscores the helplessness of the US and Japan in addressing their respective debt and currency problems. If these measures yield limited results, they may give the market even more reasons to sell.
The chart above illustrates that since the start of the "Trump 2.0" era, overseas investors have shown diminishing appetite for US Treasuries. Adding to the strain, tech giants have been aggressively raising funds in the bond market this year, increasing the supply of corporate bonds and competing with the government's debt issuance for a limited pool of capital. This heightened competition for funds is further accelerating the rise in borrowing costs, as investors demand higher returns for their capital.
All things considered, Treasury yields are likely to remain at historically elevated levels — and that's without even factoring in the possibility of Federal Reserve rate hikes. Could such high yields suppress gold prices? In theory, higher yields should weigh on gold, but that logic holds only when rates are rising because economic growth is boosting returns on risk assets and dampening demand for gold. However, when yields climb due to fears of a US debt default or risks stemming from the AI-driven financing loop, it precisely highlights gold's role as a hedge against risk and the growing need for de-dollarization. As a result, the relationship between interest rates and gold prices — as well as between rates and the US dollar — is diverging, and this decoupling may well continue.
As shown in the chart above, as America's dominance in the global economy — as well as in political and diplomatic spheres — declines, the US dollar index may be experiencing its third major downtrend since 1985 and 2001. A weaker dollar naturally serves as a tailwind for gold.
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