Bullion's price reaction to capping long bond yields was immediately positive

Scott Bessent's yield-capping scheme has turbo-charged gold's rebound.

Since troughing around $4000 per ounce at the end of July, the price of gold had been recovering steadily.

After Treasury Secretary Scott Bessent announced on Wednesday the Treasury would be doubling its buybacks of government bonds in the 10-30 year tenor, the gold price ripped 3% to the $4,550 an ounce level. The Van Eck Gold Miners exchange-traded fund GDX spiked more than 9%.

For investors, the upshot of the Treasury Department's maneuver is they should buy gold (GC00).

This is the advice of many observers, including Citi's global macro research team led by Dirk Willer. Their note published after the Bessent announcement Wednesday slaps a $5,000 base case target on gold with a 6-12-month horizon, and a $6,000 target in a bullish scenario. Their message is unequivocal: "Gold: chase higher."

The message from such analysis is that the so-called debasement trade is back on.

The debasement trade is a strategy that gained traction in 2025 wherein investors concerned about aggressive fiscal and monetary policy, and currency devaluation, moved out of fiat currencies into inflation hedges and traditional stores of value like precious metals.

Why should gold appreciate? Well, as Willer emphasizes, "the main price to pay for trying to control yields is a weaker dollar DXY." This is because the market is not being properly compensated for buying long-duration U.S. Treasury bonds and the interest rate differentials that drive investors into the higher-yielding dollar are now less favorable.

Moreover, the dollar and the gold price are often inversely correlated and so Wednesday's outsized move lower in the dollar index amplified the upward trend in gold.

Willer also adds that historically the gold price has benefited from a steepening yield curve (when short-term Treasury notes BX:TMUBMUSD02Y outperform longer-duration Treasury bonds BX:TMUBMUSD30Y).

Furthermore, that the spike in gold occurred just as the U.S. national debt broke through the $40 trillion milestone Wednesday is probably not coincidental.

Explaining gold's move, Robin Brooks, senior fellow at the Brookings Institution posted on X Wednesday that the real issue is that "the U.S. isn't willing to get the deficit under control" and gold is a beneficiary of mounting concerns globally about the unsustainability of such deficits.

Keith Lerner, chief investment officer at Truist Advisory Services had been negative on gold for most of 2026, but after Wednesday's developments he upgraded his recommendation to neutral citing several factors.

The stabilization of real interest rates has removed one headwind from no-yield gold, says Lerner

First, real interest rates (nominal bond yields adjusted for inflation) have stabilized. Because gold is a no-yield asset, rising real interest rates are a major headwind. Second, gold broke through its 200-day moving average of $4,510 Wednesday. Third, central bank demand for gold remains "resilient" and lastly, Lerner also cites a softening dollar as being helpful.

-Jules Rimmer