April 19 - Concern about the rapidly rising U.S. government debt is partly behind recent surges in gold prices and bitcoin, even as the Treasury market so far remains relatively sanguine about the country's fiscal path, market observers say.
This worsening trajectory has boosted demand for bitcoin and gold, which are often used as a hedge against inflation and the depreciating purchasing power of the U.S. currency. Yields in Treasury debt largely reflect expectations of Federal Reserve interest rate policy. At times they are swayed by increases in debt supply, though the longer-term fiscal trajectory is less of a factor in the market.
“There’s interest in both gold and bitcoin because of that, because inflation’s been unsteady in the last couple of years,” said Lawrence H. White, professor of economics at George Mason University. The gold surge is also being driven by expectations of central bank rate cuts and purchases by foreign central banks diversifying their reserves. This is partly due to inflation concerns, and also a way to protect against possible U.S. sanctions in a geopolitical dispute.But the rapidly worsening U.S. fiscal situation remains a key driver for some investors.
So far, however, several Treasury market indicators show that bonds are not pricing in a worsening fiscal outlook, said Nicholas Colas, co-founder of DataTrek Research.
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