Gold Beats 10-Year Treasuries as U.S. Debt Costs Rise

Jeff Sarti, CEO of Morton Wealth, stated he would choose gold over 10-year U.S. Treasuries in any scenario. He rejected the current 5% yield on long-term government debt as insufficient protection. Sarti labeled gold an insurance policy against fiscal deterioration. He described Treasury bonds as mere yield-producing instruments. The comparison ignores the divergent roles of these assets in a portfolio.

These comments followed the Federal Reserve’s decision to raise rates by 25 basis points. The federal funds rate now sits between 3.75% and 4.00%. Inflation remains above the central bank’s 2% target. The Consumer Price Index rose 3.4% over the last 12 months. Core inflation increased 2.4% year over year. Sarti called modest rate hikes irrelevant against the backdrop of high debt.

Fiscal pressure overrides monetary policy

Sarti argued that the U.S. economy carries significantly more debt than in previous cycles. This limits the Federal Reserve’s ability to act like Paul Volcker in the 1980s. The debt-to-GDP ratio restricts aggressive rate hikes. He noted that higher borrowing costs increase government interest expenses. Refinancing large amounts of federal debt at higher rates worsens the fiscal outlook.

The manager cautioned that recent yield rises partly reflect normalization. The yield curve was deeply inverted between 2022 and 2024. However, the long end of the Treasury market remains a critical indicator. The key question is whether demand matches the massive supply of new debt. This dynamic matters more for gold prices than further rate hikes.

Bond market dynamics shift focus

Sarti emphasized that the current environment is defined by fiscal risks. He stated that the market is watching for signs of unanchored expectations. The 10-year bond yield fell back below 5.00% recently. This decline offers some confidence in the long end of the yield curve. Yet, Sarti maintained that gold serves a fundamentally different role. It provides outsized returns when economic conditions deteriorate.

Investors prioritize capital preservation

According to GN auto markets/bonds: sovereign debt, the debate highlights a structural shift. Investors are weighing income against protection. Sarti advised against comparing non-yielding gold directly with yielding Treasuries. He suggested that a 5% return over ten years is unattractive if inflation stays high. Currency volatility and fiscal confidence are the primary risks. Gold addresses these specific vulnerabilities directly.