Following the Bessant bond operation, "currency devaluation trading" has made a comeback: gold is once again in high demand.
2026-08-26 00:15:00
Market concerns about US government spending have reignited the momentum for currency devaluation trades. Gold prices have surged recently, while the US dollar has weakened against other major currencies. As market anxieties intensify regarding the size of the US budget deficit and its financing costs, "currency devaluation trades" have once again become a hot topic on Wall Street. 
The underlying logic behind these transactions is that when investors worry that large-scale government borrowing will drag down the dollar and weaken the value of US Treasury bonds, they flock to recognized hard assets, such as precious metals. This market panic peaked around the time US Treasury Secretary Scott Bessant announced his unusual debt buyback plan last week. Stephen Coltman, macro director at 21Shares, stated, "The size of the Treasury bond buyback announced by Bessant is negligible relative to the overall market size, but the signal it sends is very strong." COMEX gold futures hit a three-month high on Monday, extending last week's gains of over 5%. Gold has risen for five consecutive weeks and is on track for its best monthly performance since 1999 in August. In contrast, investors are selling off the dollar. The dollar index, which measures the dollar's performance against six major currencies, fell to a three-month low last week, marking its third weekly decline in the past four weeks. There was little willingness to go long on the dollar on Monday, and the dollar index remained under pressure. The market's "signal" came from the US Treasury's announcement last week that it would increase the cap on bond buybacks from $2 billion to at least $4 billion. Two senior Treasury officials revealed on Monday that the Treasury may use nearly $1 trillion from its total fiscal account to fund the repurchase program. This announcement came just before data showed that the U.S. fiscal deficit hit a five-year high in July, and the total U.S. government debt officially surpassed the $40 trillion mark. Bessant had previously stated that he had a full suite of policy tools at his disposal to stabilize the Treasury market amid market concerns about the health of U.S. public finances. Yields on long-term U.S. Treasury bonds rose sharply, with the 30-year yield briefly surging to 5.34%, near a 20-year high, compared to just 4.82% at the end of June. After the Treasury launched the repurchase program, yields briefly declined before rebounding again. This suggests that bond investors believe Bessant's intervention is insufficient to address the fundamental problems. Billionaire philanthropist and former energy trader John Arnold wrote, "The market is sending a clear signal. A weaker dollar, falling Treasury prices, and stronger hard assets are all part of the 'currency devaluation trade.'" Noshad Shah, head of fixed income sales for Europe, Africa, and the Middle East at Citadel Securities, stated that the Treasury's actions might provide some support to the bond market, but could also put significant downward pressure on the dollar. This presents a high risk and reward for monetary policymakers: a weaker dollar would ease overall financial conditions, while US inflation has been above the Fed's 2% target for five consecutive years, potentially exacerbating inflationary pressures. Shah believes the Fed may be forced to raise interest rates. According to the CME FedWatch Tool, federal funds futures indicate that the market expects a 56% probability of a Fed rate hike in October, an increase of more than 7 percentage points from a week ago. "The bond market is sending a very clear signal: fiscal or monetary policy needs further tightening," Shah wrote in a research report on Monday. "If policymakers are unwilling to patch loopholes while things are still relatively stable, the ultimate cost will be borne by ordinary households." 21Shares' Cortman added that the influx of funds into alternative value stores is also driven by escalating geopolitical conflicts. The US unveiled global sanctions against Iran on Monday, attempting to isolate it from the global economic system; just days earlier, the US had imposed tariffs on billions of dollars worth of Canadian imports. Despite the uncertainty at this "turning point," many Wall Street institutions remain bullish on assets related to "currency devaluation trades." Deutsche Bank analyst Michael Schaefer stated in a report on Monday that gold is poised to break through its target price of $4,800 per ounce, catalyzed by Treasury intervention. Compared to Friday's closing price, gold only needs to rise by about 3% to reach that level. He wrote, "We believe the Treasury's policy shift further confirms the bullish logic for gold." Ray Dalio, founder of Bridgewater Associates and a billionaire investor, suggested that investors should overweight gold in the face of the risk of a debt crisis triggered by the US government's unrestrained borrowing. He proposed that gold allocations in model portfolios could reach up to 15%. Dalio posted on LinkedIn on Friday, "The US government's fiscal situation is at a turning point. If not addressed now, the debt will continue to accumulate, and resolving it in the future will inevitably be accompanied by enormous economic trauma." However, some market participants do not agree with the logic of "currency devaluation trading."
The underlying logic behind these transactions is that when investors worry that large-scale government borrowing will drag down the dollar and weaken the value of US Treasury bonds, they flock to recognized hard assets, such as precious metals. This market panic peaked around the time US Treasury Secretary Scott Bessant announced his unusual debt buyback plan last week. Stephen Coltman, macro director at 21Shares, stated, "The size of the Treasury bond buyback announced by Bessant is negligible relative to the overall market size, but the signal it sends is very strong." COMEX gold futures hit a three-month high on Monday, extending last week's gains of over 5%. Gold has risen for five consecutive weeks and is on track for its best monthly performance since 1999 in August. In contrast, investors are selling off the dollar. The dollar index, which measures the dollar's performance against six major currencies, fell to a three-month low last week, marking its third weekly decline in the past four weeks. There was little willingness to go long on the dollar on Monday, and the dollar index remained under pressure. The market's "signal" came from the US Treasury's announcement last week that it would increase the cap on bond buybacks from $2 billion to at least $4 billion. Two senior Treasury officials revealed on Monday that the Treasury may use nearly $1 trillion from its total fiscal account to fund the repurchase program. This announcement came just before data showed that the U.S. fiscal deficit hit a five-year high in July, and the total U.S. government debt officially surpassed the $40 trillion mark. Bessant had previously stated that he had a full suite of policy tools at his disposal to stabilize the Treasury market amid market concerns about the health of U.S. public finances. Yields on long-term U.S. Treasury bonds rose sharply, with the 30-year yield briefly surging to 5.34%, near a 20-year high, compared to just 4.82% at the end of June. After the Treasury launched the repurchase program, yields briefly declined before rebounding again. This suggests that bond investors believe Bessant's intervention is insufficient to address the fundamental problems. Billionaire philanthropist and former energy trader John Arnold wrote, "The market is sending a clear signal. A weaker dollar, falling Treasury prices, and stronger hard assets are all part of the 'currency devaluation trade.'" Noshad Shah, head of fixed income sales for Europe, Africa, and the Middle East at Citadel Securities, stated that the Treasury's actions might provide some support to the bond market, but could also put significant downward pressure on the dollar. This presents a high risk and reward for monetary policymakers: a weaker dollar would ease overall financial conditions, while US inflation has been above the Fed's 2% target for five consecutive years, potentially exacerbating inflationary pressures. Shah believes the Fed may be forced to raise interest rates. According to the CME FedWatch Tool, federal funds futures indicate that the market expects a 56% probability of a Fed rate hike in October, an increase of more than 7 percentage points from a week ago. "The bond market is sending a very clear signal: fiscal or monetary policy needs further tightening," Shah wrote in a research report on Monday. "If policymakers are unwilling to patch loopholes while things are still relatively stable, the ultimate cost will be borne by ordinary households." 21Shares' Cortman added that the influx of funds into alternative value stores is also driven by escalating geopolitical conflicts. The US unveiled global sanctions against Iran on Monday, attempting to isolate it from the global economic system; just days earlier, the US had imposed tariffs on billions of dollars worth of Canadian imports. Despite the uncertainty at this "turning point," many Wall Street institutions remain bullish on assets related to "currency devaluation trades." Deutsche Bank analyst Michael Schaefer stated in a report on Monday that gold is poised to break through its target price of $4,800 per ounce, catalyzed by Treasury intervention. Compared to Friday's closing price, gold only needs to rise by about 3% to reach that level. He wrote, "We believe the Treasury's policy shift further confirms the bullish logic for gold." Ray Dalio, founder of Bridgewater Associates and a billionaire investor, suggested that investors should overweight gold in the face of the risk of a debt crisis triggered by the US government's unrestrained borrowing. He proposed that gold allocations in model portfolios could reach up to 15%. Dalio posted on LinkedIn on Friday, "The US government's fiscal situation is at a turning point. If not addressed now, the debt will continue to accumulate, and resolving it in the future will inevitably be accompanied by enormous economic trauma." However, some market participants do not agree with the logic of "currency devaluation trading."
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