On Monday (September 23), during the midday session of the Asian market, gold surged to $2,630, reaching a historic high. The dovish pricing of the 50 basis point interest rate cut by the Federal Reserve in September continues to ferment. Laurent Maurel, a precious metals investment researcher at Recherche Bay, pointed out that another key reason is that the US deficit and debt have reached a new world record, with a total debt of $35 trillion.

Maurel pointed out that the total amount of US debt (public and private) has now exceeded $35 trillion.

(Source: FRED)

The vast majority of US debt is held domestically, while the proportion held by foreign entities in the total debt is declining:

(Source: GoldSeek)

Over the past decade, the proportion of US Treasury bonds held by foreign institutions has not increased, while public debt has continued to grow.

"We are currently experiencing a more pronounced debt expansion cycle. Since 2000, the slope of the curve representing this debt has steepened three times. Now we are at the beginning of a new round of accelerated public debt in the United States," said Moeril.

(Source: Reuters)

He mentioned that US public debt has reached a record-breaking $34.5 trillion, increasing by $1 trillion every 100 days since June. The debt-to-Gross Domestic Product (GDP) ratio is currently 123.7%, close to the peak of 126.2% during the pandemic period.

Historically, countries with a debt-to-GDP ratio exceeding 130% often experience debt defaults.

As the US dollar loses its status as the primary currency in international trade, this risk will further intensify. Logically, if foreign countries reduce their use of the US dollar, their willingness to purchase US debt will decrease. Although the US dollar has a long way to go before losing its dominant position, a slight decrease in demand for the US dollar may exacerbate the tense situation surrounding the surge in US debt, which requires greater demand.

In the past 12 months, government debt interest payments reached a record-breaking $1.12 trillion, doubling in two years. The debt burden now exceeds social security funds and has become the largest expenditure in the federal budget.

The interest burden of the debt has also exceeded the budget allocated to defense.

(Source: US Congressional Budget Office)

Historian Neil Ferguson pointed out that in many countries, when public spending on debt repayment exceeds the defense budget, it often marks the beginning of a recession.

In other words, Ferguson believes that if a country allocates more resources to debt repayment than to defense, it may lose sovereignty or geopolitical power. Ferguson's "law" clearly indicates that the United States is currently in a precarious position due to its debt level.

Another complicating factor is that the country's public debt has a very short maturity period. This means that the country will have to refinance this huge debt in the near future.

(Source: GoldSeek)

Murrell said that the cost of this refinancing is the main reason why Federal Reserve Chairman Powell has taken such an aggressive interest rate policy. Interest rate cuts are essential for reducing the refinancing costs of the Treasury Department. Whether this will trigger criticism of central bank independence or whether rapid interest rate cuts will cause a resurgence of mid-term inflation is irrelevant. The emergency is government financing, and the chart of US debt maturity dates perfectly illustrates the Fed's decision to cut interest rates by 50 basis points last Wednesday.

The second record involves the US deficit, including two aspects: record budget deficit and record trade deficit.

In July 2024, the US trade deficit widened to $78.8 billion, the largest shortfall since June 2022:

(Source: BEA)

The budget deficit in August was much higher than expected, reaching $380 billion in just one month, which is higher than the $290 billion of the previous month, which is shocking: This number sets a new record, exceeding the most pessimistic forecast by $80 billion:

(Source: GoldSeek)

The reckless behavior of the US government has reached a new high, which is the result of the combined effect of increasing debt burden and typical election period relaxation of budget policy.

This time, the bad data was not ignored. After the news of the budget decline was announced, the gold price skyrocketed recently.

The interest rate cut has had an impact on gold, but the US public fiscal situation is also pushing up the gold price. Since the decisive breakthrough in the spring of 2023, the gold price has continued to hit new highs, marking the end of the 13-year consolidation period.