Gold prices are poised to benefit from rising U.S. fiscal deficits and growing financial instability, even in the absence of an imminent crisis, according to analysts at the World Gold Council (WGC).
“With the passage of the ‘One Big, Beautiful Bill’, the United States is facing an additional $3.4 trillion in debt over the next decade, along with a $5 trillion increase in the debt ceiling — unless the Trump administration can achieve its ambitious economic growth targets,” the analysts wrote.
They added, “Add to that Elon Musk’s launch of the ‘America Party’ and an increasingly polarized political backdrop, and both fiscal and political risks are stacking up.”
These uncertainties have “already triggered a global reallocation of capital,” as the weakening U.S. dollar has driven up both gold prices and Treasury yields. “As fiscal pressures mount, bond market volatility is likely to persist, ultimately supporting demand for gold as a safe-haven asset,” they noted.
The WGC outlined in detail the potential impacts of this evolving fiscal environment on the gold market.
“First came ‘Liberation Day,’ when Donald Trump’s initial announcement of tariffs rang alarm bells and prompted an unprecedented sell-off in U.S. Treasuries,” they wrote.
“The market has barely recovered from that disruption and is now grappling with the likely impact of Trump’s ‘Big, Beautiful Bill,’ which the nonpartisan Congressional Budget Office estimates will add $3.4 trillion to the existing $36.2 trillion national debt.”
The analysts noted that investors are closely monitoring how the spending bill could affect asset allocation strategies. “With uncertainty everywhere, gold is likely to remain an attractive safe haven for investors navigating a volatile world increasingly shaped by fiscal anxieties,” they said.
Typically, rising interest rates would present a strong headwind for gold. However, “since 2022, this inverse correlation has been offset by other factors,” they explained.
“As real interest rates have risen — now above 2% — gold prices have also generally increased, supported by risk-averse investors and robust central bank buying.”
“Indeed, central bank purchases, and the acceleration of those purchases since 2022, have been a major factor behind gold’s strength,” they added.
They noted that emerging market central banks are boosting gold reserves for multiple reasons — including diversification, geopolitical concerns, and gold’s proven performance during times of crisis.
“More recently, consumer confidence and business investment plans have been undermined by economic and trade policy uncertainty,” the report continued. “This, in turn, has triggered capital reallocation away from the U.S., as global investors seek alternative safe-haven assets to U.S. Treasuries.”
According to the WGC, the outcomes of this shift include “a weaker dollar, higher gold prices, and wider spreads between U.S. and other high-grade sovereign bond yields, such as those of Germany.”
“Broadly speaking, we believe fiscal concerns have played a key role in supporting the gold market,” they stated. “For example, the spread between U.S. Treasury yields and fixed interest rate swaps has widened — a potential indicator of fiscal distress. In other words, we are witnessing investor reluctance or inability to absorb new debt issuance or sales by other bondholders at current prices, thereby driving yields higher and widening Treasury swap spreads.”
“Our simplified analysis suggests that the spread between Treasuries and swap rates — which we believe is at least partly linked to U.S. fiscal concerns — is statistically significant in explaining gold price movements,” they wrote. “In practical terms, when fiscal concerns rise — reflecting doubts about the sustainability of U.S. government debt or deficits — investors may turn to gold for relative safety, pushing prices higher.”
All of this puts the United States in a fragile fiscal position. “The gold market is likely to continue being supported by U.S. fiscal issues, as the bond market remains highly sensitive to debt sustainability,” the WGC noted. “Indeed, two decades of lax fiscal policy and shifting demand structures have left the U.S. in a vulnerable state — one that could be worsened by the enactment of the ‘Big, Beautiful Bill.’”
The analysts also pointed out that demand for Treasuries from the Federal Reserve and foreign governments — historically the least yield-sensitive buyers — is on the decline. “In contrast, foreign private investors are now the largest non-official holders of Treasuries, and they are likely the most price-sensitive group, given their global mandates and tendency to compare Treasuries against sovereign bonds across multiple jurisdictions.”
The WGC emphasized that they do not view a full-blown fiscal crisis in the U.S. as imminent. “Such a crisis would require a short-term trigger — such as a miscalculation on the debt ceiling resulting in a technical default — that would amplify the existing long-term destabilizing trends.”
“More likely,” they continued, “is a series of rolling mini-crises, as political ambitions collide with bond market expectations. In fact, when it comes to fiscal sustainability, perceptions can be just as important as policy.”
“If political leaders give the impression that their commitment to long-term fiscal discipline is weakening — or that they are intent on pushing through policies that further damage the fiscal outlook — the market reaction is typically swift and severe,” the analysts warned. “However, such reactions are often short-lived, as governments retreat in the face of market pressure, and central banks step in to prevent yields from rising too fast (which they will always do if financial stability is threatened).”
As fiscal worries persist, gold is expected to remain a well-supported safe-haven asset.
“The interest rate environment and geopolitical tensions undoubtedly play a major role in driving gold prices, but they are not the only factors,” the WGC concluded. “Fiscal concerns also carry weight. And while confidence remains strong that the U.S. Treasury market will never lose its safe-haven status, a major crisis — while unlikely — is not impossible. The more probable outcome is a string of smaller crises as heavily indebted nations like the U.S. encounter market-imposed limits on fiscal largesse.”
“This uncertainty — and the resulting market volatility — is likely to provide additional support for the gold market.”