Why are gold and bitcoin rising after Treasury buybacks?
Bigger bond buybacks and a $40 trillion debt load have revived the debasement trade, lifting gold and bitcoin while the dollar softens.
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Gold and bitcoin rose after the U.S. Treasury said it would expand longer-term bond buybacks, reviving talk of the “debasement trade.” That phrase describes investors turning to assets seen as stores of value when they fear heavy government borrowing will erode the dollar’s purchasing power over time. The idea has resurfaced as fiscal arithmetic and market signals align in ways that heighten those concerns.
CNBC reported the trade is gaining traction as concern mounts over the size and cost of the budget deficit. Federal debt has topped $40 trillion. July’s monthly budget deficit hit a five-year high. Against that backdrop, Treasury Secretary Scott Bessent’s decision to increase debt buybacks helped ignite the discussion among market participants watching both the stock of debt and the flow of new borrowing.
Treasury said it would more than double the maximum size of its longer-term bond buyback to at least $4 billion from $2 billion, with the first operation due Sept. 9. Two senior officials told CNBC the near-$1 trillion Treasury General Account could help fund the plans. Stephen Coltman at 21Shares called the purchase size trivial next to the market but said the signaling effect was powerful. Some investors remain skeptical unless the Federal Reserve cooperates with Treasury’s market management, underscoring that buybacks alone do not resolve deeper fiscal pressures.
Price action followed quickly. Gold touched three-month highs Monday after gaining more than 5% last week, extending a run of five straight weekly gains. August was on track for its biggest monthly rise since 1999. Bitcoin added about 2% Monday to its highest level since May after a 22% three-day rally; overnight Tuesday it touched $80,000. Together, the moves reinforced the sense that stores-of-value assets were responding to the same fiscal and currency backdrop.
The U.S. dollar index hit three-month lows last week and logged its third down week in four. Long-dated Treasury yields had already surged: the 30-year nearly reached a 20-year high around 5.34%, up from 4.82% in late June, then dipped and rebounded after the buyback news. That path left yields elevated even as officials pointed to tools for managing market functioning.
CNBC cited Citadel’s Nohshad Shah noting that a weaker dollar can ease financial conditions even while inflation stays above the Fed’s target. Markets were pricing roughly a 56% chance of an October Fed hike. In short, the buyback announcement did not shrink the debt load. It did reinforce the perception that officials are willing to manage bond-market pressures while deficits remain large—exactly the mix that has historically fed debasement concerns and supported gold and bitcoin in the near term.