According to analysts at the World Gold Council, gold prices will benefit from the soaring budget deficit and the growing financial instability of the US, even if no crisis occurs in the short term.
With the big spending law known as Big Beautiful Bill passed, the US is facing an additional $3,400 billion in debt over the next decade and the debt ceiling could increase by $5,000 billion, if the Trump administration manages to realize ambitious growth forecasts.
In addition, Elon Musk's launch of the "American Party" and the tense political landscape, financial and political risks are piling up."
Analysts said that these uncertainties "hatched global capital reallocation", in which a weakening USD pushed up gold prices and US Treasury yields.
As fiscal pressures increase, fluctuations in the bond market will continue, thereby strengthening demand for gold as a safe haven asset, the experts said.
The WGC has detailed the potential impacts of this new fiscal landscape on the gold market. Notably, Liberation Day when Donald Trump announced his first tax policy caused a stir in the market and led to an unprecedented wave of sell-offs in US Treasury bonds.
Since then, the market has not really recovered completely, and now, investors continue to face new risks from the Big Beautiful Bill a law that the Congressional Budget Office (CBO) predicts will increase US public debt by $3,400 billion, bringing the total debt to $ 36,200 billion.
Analysts said investors are closely monitoring the impact of this spending package on asset allocation strategies. In the context of widespread uncertainty, gold may continue to be an attractive haven for investors trying to navigate a volatile world, as fiscal concerns increase investment risks.
Interest rate increases should have been a major obstacle for gold prices. However, from 2022 to now, that relationship has been overshadowed by other factors. Although real interest rates have increased (currently over 2%), gold prices have also increased as investors seek risk-offs and as a result of the demand for gold from central banks the report said.
Moreover, the accelerating wave of gold purchases from central banks, especially in emerging markets from 2022, has been an important factor driving gold prices. The reasons for this increase include diversification needs, geopolitical risks, and gold's performance in times of crisis.
Recently, consumer confidence and investment plans of businesses have been affected by instability in economic and trade policies. This has caused global capital outflows from the US, as international investors seek safe-haven assets to replace Treasury bonds, they added.
The WGC said the result was a weaker US dollar, rising gold prices, and expanding US bond yields compared to other high-quality bond issuers such as Germany.
Moreover, we believe that fiscal concerns are one of the factors supporting the gold market. For example, the gap between US government bond yields and fixed exchange rates has increased which could be a sign of fiscal concerns. In other words, investors are not willing or unable to absorb more bonds issued or sold at current prices, leading to pressure to increase yields and increase the difference in the exchange rate of US Treasury bonds" - analysts commented.
