Strategist Now Warns That The Treasury Is At High Risk

October 17, 2024

A strategist now warns that the Treasury is at high risk due to the alarming amount of piling U.S. debt today.

Bank of America strategists have highlighted that gold is becoming increasingly attractive as traditional “safe haven” assets confront rising risks.

They suggest that investors, including central banks, should shift their focus toward gold, which is viewed as a hedge against inflation and the devaluation of debt driven by escalating government borrowing.

In a note released on Wednesday, the strategists stated, “Gold appears to be the last ‘safe haven’ asset standing, prompting traders and central banks to increase their exposure.”

They pointed out that with U.S. debt expected to continue rising, there are risks associated with Treasury supply.

Additionally, the growing interest payments as a proportion of GDP will enhance gold’s appeal in the coming years.

This trend is not limited to the U.S.; the analysts noted that the International Monetary Fund anticipates that new spending could reach 7%-8% of global GDP annually by 2030, per Markets Insider.

The analysts warned, “Ultimately, something has to give: if markets become hesitant to absorb all the debt and volatility rises, gold may emerge as the preferred asset.

Central banks, in particular, could diversify their currency reserves further.”

They also mentioned that neither candidate in the upcoming U.S. presidential election is focused on fiscal discipline or reducing spending, which is expected to drive national debt to a record high relative to the economy over the next three years.

This will increase interest payments as a share of GDP, making gold more attractive amid concerns that markets may struggle to absorb new debt.

The analysts concluded, “With ongoing worries about U.S. funding requirements and their implications for the Treasury market, gold may become the ultimate perceived safe haven asset.”

They maintained their price target of $3,000 per ounce for gold by the end of next year, suggesting an 11.1% increase from current levels.

The analysts’ optimistic outlook on gold coincides with growing concerns about rising spending and debt globally.

Recently, investors have turned to gold as the Federal Reserve commenced its easing cycle with a 50-basis point interest rate cut last month, leading to a 4.3% increase in gold prices over the past month.

Additionally, central banks worldwide have increased their gold reserves, with gold now constituting 10% of total central bank reserves, up from just 3% a decade ago.

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Also Read: TD Bank Now Gets Caught With Illegal Market Manipulation

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