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| By Sean Brodrick |
Something important happened in Washington this week: Treasury Secretary Scott Bessent panicked about too-high interest rates.
His solution is a temporary Band-Aid at best, but it’s great news for gold, silver, copper and mining stocks.
And I’ve got a cheap way for you to play it.
Yesterday, the Treasury Department announced that it will at least double the size of its buybacks of longer-dated Treasury securities beginning Sept. 9.
Specifically, the Treasury will raise the maximum size of its “liquidity support” purchases in the 10- to 20-year and 20- to 30-year sectors from $2 billion per operation to at least $4 billion per operation.
I know bonds are a good sleep aid, but don't snooze on this one.
The announcement helped push the U.S. dollar lower, while gold, silver, copper and critical-mineral stocks and miners moved higher.
Energy stocks joined the party, too, but that’s probably more due to the ongoing fiasco in the Persian Gulf.
So, what's going on?
Panic on the Bond Floor
Jim Bianco, president of Bianco Research, summed it up well when he wrote: “I’ve been saying ‘bond traders can stop panicking when the Fed starts panicking.’ I should have said, ‘bond traders can stop panicking when Scott Bessent starts panicking.’”
Bessent calls himself America’s “top bond salesman.”
He wants to sell more bonds at higher prices – pushing down yields – to lower mortgage rates and make President Trump happy.
But despite his best efforts, the yield on the 30-year bond topped 5.3% this week — its highest level in nearly two decades. Average mortgage rates are creeping back up toward 7%.
This is happening while the U.S. national debt soars above $40 TRILLION for the first time ever.
And that puts America’s debt more than 120% of gross domestic product.
In other words, debt is mounting up, higher and higher.
And the rising debt load leads investors to demand higher interest rates for U.S. debt — exactly the opposite of what Trump wants.
So how does Bessent fix that?
Uncle Sam Is Buying More of Its Own Bonds
The Treasury Department is buying more longer-dated bonds. To do that, it will issue more shorter-dated T-bills.
If short-term interest rates stay elevated longer than anticipated, this trade increases the government's ongoing interest expenses.
When the Treasury buys long-dated bonds, it becomes an additional buyer in that market.
That supports bond prices at the margin. And because bond prices and yields move in opposite directions, it can put downward pressure on long-term yields.
Now, let's be clear about the scale — $4 billion is a rounding error compared with the gigantic Treasury market.
And $4 billion is a maximum per operation, not a promise that Treasury will spend that much every time.
So, the important thing is that the Treasury Department is telling markets it is willing to increase its presence as a buyer precisely in the 10- to 30-year portion of the Treasury curve, where worries about deficits, inflation, massive government borrowing and the term premium tend to hit hardest.
And Wall Street immediately started wondering where this road leads.
Is This Yield-Curve Control?
Not yet.
True yield-curve control occurs when a central bank targets a particular interest rate.
But the Treasury didn’t announce a yield target or promise unlimited purchases.
Still, I think you can call this yield-curve-control adjacent.
The Treasury is increasing official purchases in the part of the curve that has been causing policymakers the biggest headaches.
More importantly, traders now know that if long-term yields start jumping, the Treasury has a mechanism it can use to expand.
And if Bessent uses this mechanism once, he’ll likely use it again!
Why Resources Like This News
If investors believe Washington is becoming less tolerant of rising long-term yields, it changes the equation for the dollar.
Suppressing or even cushioning long-term yields can reduce the relative attractiveness of dollar-denominated bonds.
If real yields fall along with them, that's especially bullish for gold.
If investors start to believe Treasury purchases are shifting from “improving liquidity” to keeping the government's borrowing costs under control, concerns about fiscal dominance, inflationand currency debasement will grow.
That could be rocket fuel for precious metals.
Gold and silver are the obvious beneficiaries. And sure enough, on Wednesday, the U.S. dollar index fell about 0.8%, while gold gained roughly 4% — with spot gold reported UP about 4.35% on the day.
A weaker dollar is also supportive of other dollar-priced commodities.
The easiest way for you to play this is to buy gold.
I haven’t recommended the SPDR Gold MiniShares (GLDM) before, which is an oversight.
The GLDM holds physical gold like the better-known SPDR Gold Shares (GLD).
The difference is that GLDM’s expense ratio — what you pay to own the fund – is ONE-FOURTH that of the GLD.
So you get all the gold exposure of the GLD on the cheap! And the GLDM is plenty liquid, too.
Looking at a chart, you can see GLDM ran up with gold last year, then spent the first half of this year consolidating those gains. It’s breaking out again.
I believe gold is going to $10,000 an ounce.
That would take the GLDM to about $200 a share — a 122% gain from recent prices.
If Treasury Secretary Bessent intervened once in the bond market, he’ll do it again.
That means more upward pressure on gold, and the GLDM.
Buy any pullbacks. Higher prices are dead ahead!
All the best,
Sean Brodrick
