The "debasement trade" is regaining momentum on Wall Street as investors grow more concerned about the size and cost of the U.S. budget deficit, with gold and bitcoin both climbing following a Treasury Department move to expand debt buybacks under Secretary Scott Bessent.
The trade rests on the premise that hard assets like cryptocurrencies and precious metals gain as investors hedge against a weaker U.S. dollar and Treasury debt amid rising government spending. "The size of the Treasury purchases announced so far by Bessent are trivial in comparison to the size of the overall market, but the [signaling] effect was very powerful," said Stephen Coltman, head of macro at 21Shares, a crypto-focused ETF issuer.
Gold touched three-month highs on Monday, building on last week's gain of more than 5%. The metal has risen for five straight weeks and is on track for its biggest monthly increase since 1999. Bitcoin added 2% on Monday to reach its highest level since May, after soaring 22% last week in its biggest three-day rally since 2023; overnight Tuesday it touched $80,000. The U.S. dollar index, which tracks the dollar against six other major currencies, hit three-month lows last week and posted its third down week in the last four.
Treasury's expanded buyback plan
- The Treasury Department said last week it would double the maximum size of its bond buyback to at least $4 billion from $2 billion.
- Two senior Treasury officials told CNBC on Monday the department could use its General Account to help fund the plans.
- The move followed news that the monthly U.S. budget deficit in July reached a five-year high, coinciding with total federal government debt topping $40 trillion.
- Bessent told CNBC last week he wields a "big toolkit" to calm the government bond market amid concerns about the government's financial health.
