Last Updated on 19/10/2026
Treasuries provide interest income, Bitcoin offers a predetermined supply, and cash delivers immediate liquidity. Yet each carries vulnerabilities that gold investors have recognised for centuries.
On 23 September, the US government sought to raise $70 billion through a five-year Treasury note auction. The sale was completed, as expected, but the borrowing cost attracted attention.
The notes were sold at a yield of 5.033%, the highest in approximately two decades and 64 basis points above the comparable auction four weeks earlier. Foreign participation, traditionally an important source of Treasury demand, weakened noticeably. Indirect bidders accounted for just 54.3% of the offering, their smallest share since March 2020, forcing primary dealers to absorb an unusually large proportion of the issuance.
The following afternoon, yields on 30-year Treasuries climbed to 5.501%, their highest level since 2004.
Washington could still access the bond market, but investors were increasingly demanding compensation for lending to the government.
Higher yields would normally strengthen the appeal of government debt. Investors can earn approximately 5% by lending to the US government, an advantage over gold, which generates no income, and Bitcoin, whose returns remain unpredictable.
However, the September auction highlighted a growing contradiction: investors were demanding significantly higher returns to hold an asset widely regarded by financial markets as virtually risk-free.
When Higher Yields Signal Deeper Problems
Government bonds have long occupied a central position in investment portfolios. They provide regular income, substantial liquidity and contractual repayment obligations. During periods of financial stress, investors have traditionally moved away from riskier assets and into US Treasuries, relying on the government’s capacity to meet its obligations.
That confidence has endured through wars, recessions, banking crises and extraordinary experiments in monetary policy.
However, US federal debt has surpassed $40 trillion, while the Congressional Budget Office recorded $963 billion in net interest payments during the first ten months of fiscal 2026. As existing obligations mature, refinancing them at higher rates increases the government’s debt-servicing burden.
This creates a difficult question: how will Washington finance its growing interest expenses?
The government has several options, including raising taxes, cutting spending or issuing additional debt. Each carries economic and political consequences, particularly in an environment where voters have grown accustomed to extensive public spending and government support.
Inflation presents another possibility, albeit a less transparent one.
Government debt is generally repaid in the currency in which it was issued, even if that currency loses purchasing power over time. Bondholders may receive every scheduled interest payment and the full nominal principal while discovering that their money buys considerably less than when they originally invested.
Investors therefore face two distinct risks. Rising yields can push down the market prices of existing bonds, with longer-maturity securities typically experiencing greater sensitivity. Meanwhile, persistent inflation erodes the real value of future interest payments and principal repayments.
A 30-year Treasury purchased in May 2020 was reportedly trading at approximately 45 cents on the dollar in August. The US government had not defaulted, yet the bond’s market value had fallen dramatically.
Higher yields can make gold less appealing when they reflect stronger real returns and confidence in monetary stability. The picture changes when rising yields instead reflect concerns about inflation, deteriorating public finances or an expanding supply of government debt.
Under those circumstances, the additional interest may represent compensation for the very risks investors are attempting to manage.
Who Is Still Financing Washington?
The September auction also highlighted questions about the willingness of traditional foreign creditors to continue absorbing US government debt.
China’s Treasury holdings had declined to approximately $618 billion in July, less than half their November 2013 peak. Japan, America’s largest foreign Treasury holder, had also reduced its exposure as currency pressures and higher domestic yields complicated the appeal of US securities.
For decades, countries accumulating trade surpluses have recycled a portion of their foreign earnings into Treasury securities. This arrangement helped finance US budget deficits while supporting the dollar’s international role.
That relationship, however, is becoming less automatic.
If traditional foreign buyers reduce their purchases, domestic institutions and other investors must absorb a larger share of new issuance. Hedge funds’ long Treasury exposure reportedly increased from approximately $600 billion in 2014 to $2.4 trillion by the end of 2025.
Much of this activity involves leveraged strategies that depend on relatively inexpensive short-term financing. These investors can contribute substantial liquidity under normal conditions, but their positions become more vulnerable when borrowing costs increase or market volatility forces them to reduce exposure.
The Treasury market remains enormous and fundamental to global finance. Nevertheless, growing reliance on leveraged investors introduces an additional vulnerability into a market that serves as the benchmark for pricing risk across the financial system.
Bitcoin’s Unfinished Test as a Store of Value
Dissatisfaction with conventional monetary systems has helped strengthen Bitcoin’s appeal.
Its predetermined supply contrasts with fiat currencies, which central banks can expand through monetary policy. Its decentralised structure also allows users to transfer and hold assets without relying entirely on a central monetary authority.
For investors who witnessed successive rounds of quantitative easing and large-scale monetary expansion, these characteristics offer an alternative to traditional money.
Institutional participation has brought Bitcoin further into mainstream investment portfolios. Exchange-traded funds, professional custodians and established financial institutions have made access easier for a broader range of investors.
Nevertheless, Bitcoin continues to display many characteristics of a speculative asset.
Its price can rise sharply when liquidity is abundant and risk appetite is strong, but it can also suffer substantial declines when financial conditions tighten. More than fifteen years after its introduction, Bitcoin remains sensitive to market positioning, liquidity conditions and investors’ willingness to accept volatility.
For someone protecting retirement savings or setting aside money for a known future expense, an asset capable of losing half its value within months presents an obvious challenge.
Bitcoin’s institutionalisation also introduces an irony. Many investors now gain exposure through the same brokerage platforms, investment funds and custodians that early advocates hoped to avoid.
Direct ownership offers greater independence, but it requires responsible private-key management, secure storage and access to functioning digital infrastructure.
Bitcoin may continue attracting investment and generating exceptional returns. Its scarcity is embedded in the network’s rules, but scarcity alone does not guarantee stable purchasing power or reliable performance when investors need to access their money.
Central banks, for the most part, have remained outside this experiment.
Instead, they have continued accumulating gold.
Cash Provides Liquidity, Not Long-Term Protection
Cash may lack the excitement associated with financial markets, but its practical value becomes particularly apparent during periods of uncertainty.
Households need readily available savings to cover unexpected expenses. Businesses require liquidity to pay wages, rent and operating costs. Investors holding cash can also take advantage of market downturns without being forced to sell longer-term assets at unfavourable prices.
Physical banknotes offer an additional benefit: they can remain usable during internet outages, payment-network disruptions or temporary interruptions to digital banking services.
These are fundamental financial requirements that can be overlooked when investment discussions focus primarily on returns.
However, cash provides no inherent protection against inflation.
Someone holding £10,000 in physical banknotes will still possess £10,000 five years later. If consumer prices rise substantially over that period, the money will purchase less food, energy, housing and transport.
Interest-bearing deposits can offset part of this erosion, but deposit rates fluctuate with monetary policy and may fail to keep pace with inflation after taxes.
Cash earns its place in a portfolio because future spending needs are uncertain. Problems arise when money intended for short-term security becomes the principal vehicle for long-term wealth preservation.
Beyond Dependence on Sovereign Promises
Central banks confront a more complex version of the same challenge. Their reserves must remain accessible and useful across political transitions, changes in monetary policy and periods of international conflict.
The freezing of Russian foreign-exchange reserves in 2022 demonstrated how financial assets held within another country’s jurisdiction can become inaccessible through political decisions.
For governments concerned about their dependence on the US dollar and Western financial infrastructure, the episode offered a significant lesson.
China and other reserve managers consequently have additional reasons to reassess their exposure to foreign sovereign liabilities.
Gold provides a different form of reserve asset because it does not depend on another government promising to repay a debt. Physical bullion held under direct control has no maturity date, cannot be created to finance a fiscal deficit and does not require a particular payment network to remain operational.
That independence does not make gold risk-free. Its market price can decline significantly, storage and security involve costs, and investors receive no interest or dividends while holding it.
Nevertheless, central banks have continued purchasing gold at historically elevated levels.
These institutions have access to deep government bond markets, sophisticated currency-management operations and financial instruments that are unavailable to most individual investors. They understand the opportunity cost of sacrificing interest income.
Their continued accumulation of gold suggests that some governments consider monetary independence, diversification and protection against geopolitical risk valuable enough to justify giving up part of the returns available from conventional reserve assets.
What the Treasury Auction Revealed
The US government retains an extraordinary capacity to borrow. The dollar remains dominant in international trade and finance, while Treasury securities perform essential functions throughout the global banking system.
Claims that the Treasury market is on the verge of disappearing remain difficult to substantiate.
Nevertheless, September’s auction illustrated a less comfortable reality.
Washington sought $70 billion in five-year financing and secured the funds, but at a substantially higher yield than the previous month’s comparable sale. Traditional foreign demand also showed signs of weakening.
Meanwhile, investors face a range of imperfect choices: cash that gradually loses purchasing power, government bonds whose market prices can collapse without a default, and a digital asset whose potential gains come with substantial volatility.
Each serves a legitimate purpose.
Cash provides immediate liquidity. Government bonds offer contractual payments and income. Bitcoin offers exposure to a decentralised digital asset with a predetermined supply.
Gold offers neither interest income nor a maturity date, and its price can stagnate for years while investors wait for its defensive characteristics to become more valuable.
Yet central banks continue adding it to their reserves.
The underlying distinction is straightforward: a financial asset can be liquid, generate income or offer substantial upside without necessarily providing reliable protection against every form of risk.
At September’s auction, the world’s most powerful government discovered that investors wanted greater compensation for holding its promises.
Gold does not depend on such a promise.
That does not guarantee superior returns, but it helps explain why an asset with no yield continues to occupy a place in the reserves of institutions that understand the value of interest income better than almost anyone else.
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