While global attention focuses on the Israel-Iran conflict, precious metals markets are more concerned with the U.S. debt ceiling crisis than geopolitical risks, says Adrian Day of Adrian Day Asset Management.
Gold slipped below $3,400 per ounce on Monday despite Middle East tensions, highlighting the market’s shifting priorities. According to Day, the critical countdown isn’t a Middle East nuclear deal but whether the U.S. can resolve its debt ceiling deadlock.
Day explained that the Treasury currently faces a funding crisis: no new debt issuance has occurred in 2025 due to the debt ceiling not being raised. Existing Treasury issuance only replaces maturing bonds, with no net new borrowing.
“On the Friday before Trump was sworn in, [then Treasury Secretary Janet] Yellen warned that the debt ceiling would be hit Tuesday. It was basically, ‘Good luck, Trump,’” Day said in an interview with Kitco News.
The Treasury is running out of options. Although some proposals aim to reduce bank reserve requirements so banks can buy Treasuries, this requires a quid pro quo and hasn’t yet been implemented. Meanwhile, foreign official buyers have largely stopped buying long-term Treasuries, compounding the problem.
Day warned that delaying Treasury issuance will worsen the situation, compressing bond sales into a shorter timeframe, which will increase yields and borrowing costs—a vicious cycle that could deepen the fiscal strain.
“The punchline is the Fed is obviously going back to QE,” Day predicted, referencing Quantitative Easing. This move would pump money into the economy but likely spark inflation, which is very bullish for gold.
Reflecting on historical context, Day pointed to missed opportunities:
“The U.S. never issued 100-year bonds like some countries did at relatively low rates during the Obama years. That was criminally irresponsible.” This short-term political mindset contributed to the current funding crisis.
Despite political finger-pointing, Day emphasized the crisis has been building for over a decade and is not solely Trump’s fault. Going forward, he expects a multipronged strategy involving political pressure and financial incentives—such as the so-called “Mar-a-Lago Accord”—to encourage bond purchases, potentially linking defense support to buying U.S. debt.
He cautioned that the entire year’s Treasury issuance might be squeezed into six months or less, significantly challenging debt sales and increasing market stress.
Day concluded that even the threat of a U.S. default would send gold prices soaring. And if the debt ceiling is raised but the Fed becomes the primary buyer of new bonds, gold could rally strongly due to the inflationary effects of renewed QE.
“If the U.S. comes close to default, that alone is very bullish for gold,” he said. “And if the Fed ends up buying the bonds, that’s wildly bullish.”
