Robert Lambourne: Gold price reset might have been better than stretching Treasury market

By Robert Lambourne Sunday, April 12, 2026 A GATA dispatch published on October 22, 2023, scrutinized the buying of U.S. Treasuries by hedge funds during 2022: https://www.gata.org/node/22875 The hedge fund buying was achieved mainly by way of a basis trade where a Treasury bond was purchased more or less simultaneously with the hedge fund acquiring a short position in a Treasury future. Given that the U.S. Treasuries market was generally considered to be highly liquid and efficient, that there were regular trading opportunities to make highly leveraged profitable basis trades was seemingly unusual and ran counter to economic theory of how efficient large and liquid markets should operate. ... Dispatch continues below ... ... ADVERTISEMENT ... Bullion Star Opens in the U.S., Selling and Vaulting Gold and Silver Bullion Star is now open in the United States, offering gold and silver bullion at extremely competitive prices with free delivery. 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For more information, please visit: https://www.bullionstar.us/ In addition, these theoretically unlikely trades produced a strange coincidence with the process of quantitative tightening, which the Federal Reserve commenced in the spring of 2022. Perhaps the clearest way to visualize the coincidence is to view the chart produced within the original GATA dispatch here: https://www.gata.org/sites/default/files/Lambourne-Chart1A.pdf Hence, as discussed in October 2023, it appears possible that the basis trades were set up to allow quantitative tightening to happen smoothly. To anyone who has followed GATA's work, which has focused on efforts to suppress precious metals prices for more than 30 years, it is no surprise that strange coincidences occur in major financial markets. This one seemingly enabled the U.S. Treasuries market to grow beyond a level that already seems stretched using conventional metrics. In GATA's view, since the 2023 dispatch it has become increasingly likely that a point was coming close where the Treasuries market could not readily accommodate any further borrowing, unless the Federal Reserve started buying newly issued bonds. As of March 31 this year the total U.S. Treasury debt was more than $39 trillion. It was pointed out then and subsequently that the release valve of a gold price reset would probably have to be activated as U.S. government and non-government debt increased relative to gross domestic product. Here is a GATA report on how this might work based on the assumption of returning the United States to a comparable ratio of non-financial debt to GDP that was common for the country up to the early 1980s: https://www.gata.org/node/23538 A recent column in the Financial Times -- https://www.ft.com/content/c5a34c74-416c-4c90-8fc3-60a1c94d7cd5?syn-25a6b1a6=1 -- noted that hedge funds are still heavily involved in the buying of U.S. Treasuries and that in addition to using the basis trade, a new interest rate swap trade is being used.   The FT column mentions this report from the Federal Reserve -- https://www.federalreserve.gov/econres/notes/feds-notes/the-cross-border-trail-of-the-treasury-basis-trade-20251015.html -- and this report from the Bank for International Settlements -- https://www.bis.org/publ/qtrpdf/r_qt2512y.htm -- which gives much more information on what might be happening.   The BIS report describes the interest rate swap trade in more detail and it seems that tradeable opportunities are arising whereby hedge funds can make a small profit margin by buying Treasuries and then using interest rate swaps to fix the interest rate effectively used on the financing of the purchase of the Treasury.   Again, similar to the basis trade described above, it seems quite strange that regular repeat trading opportunities are appearing to allow these profitable swap trades to occur. Maybe the banks offering the interest rate swaps are themselves incentivized by the U.S. Treasury Department to offer the opportunities to certain hedge funds. It is perhaps important to explain that the authors of the Federal Reserve paper are (rightly) concerned about apparent inconsistencies in the DATA being reported on the size of the hedge fund positions in the Treasuries market. This is not something that will be covered here, but perhaps one of the reasons the U.S. Treasuries market was able to became so large was the reputation of the United States for providing reliable data regularly on its major financial markets.   Under the current administration this reputation is fraying because of less regular reporting and even the fear that deliberately misleading data is being issued.   GATA followers might allow themselves a wry smile since gold price suppression has seemingly been going on while U.S. financial markets in general have enjoyed such a strong reputation. Perhaps the overall situation with the Treasuries market can now be best described as one in which the main marginal buyers of Treasuries are hedge funds that appear to have had profitable trades created for them as an incentive to buy Treasuries.   According to figures published by the BIS in the above-mentioned report, the total hedge fund investment into the U.S. Treasuries market in June 2025 using either a basis or swaps trade or other mechanisms, was $2.4 trillion. Typically these hedge fund purchases are concentrated on bonds with two years or LESS to maturity, and this has changed the maturity profile of the Treasuries market.   The FT column cited above made clear that Treasury Secretary Scott Bessent's main role seems to be figuring out how to roll over the increasing load of maturing bonds.   The FT column notes that the Treasury Department needs to roll over about 33% of Treasury debt next year. This is hardly a comforting statistic with a seemingly difficult war in progress. If this apparently highly unusual level of government debt being funded at the margin by seemingly opaque hedge fund trades is, as GATA suspects, unsustainable (unless the Federal Reserve starts buying new debt issues), then a significant gold price reset seems imminent.   While GATA has nothing to say about the war with Iran, huge costs are being reported for replacing equipment that has been destroyed and rebuilding stocks of offensive and defensive weapons. One estimate is for defense spending to have to increase by $500 billion, and this could go much higher.   Also, the Trump administration may feel obliged to help Israel finance restoring its military capacity to pre-war levels. So perhaps as much as $1 trillion may have to be spent on top of the $1.5 trillion defense budget the Trump administration wants. Maybe the future of the Iran conflict is tied much more tightly to the financial position of the United States than is commonly understood. Resetting the gold price earlier might have been a better approach if the U.S. government was seriously considering entering several high-risk military conflicts. --- Robert Lambourne is a retired businessman in the United Kingdom who consults for GATA about the Bank for International Settlements and U.S. government debt. * * * Support GATA by purchasing Stuart Englert's "Rigged" "Rigged" is a concise explanation of government's currency market rigging policy and extensively credits GATA's work exposing it. Ten percent of sales proceeds are contributed to GATA. 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