As i sit down to write this blog, i checked the US debt clock. This is the link if you are interested to check- https://www.usdebtclock.org/. When I checked the figures, the US current debt is $37.8 trillion. When the previous US administration left, Janet Yellen , the then treasury secretary had been issuing plenty of paper with short expiration to take advantage of the lower interest rates in the shorter end of the curve. Now by all means i am not a yield curve expert and my blog is on a related matter. But suffice it to say that because of this, each year the US has to issue $9 trillion to refinance maturing debt and fund the deficits. So the US administration has a big problem. Trump came into office promising to cut taxes and boost the economy. But the constant funding needs of the treasury meant that the market was supplied with huge amount of treasury bills causing the rates to rise. The debt repayment outlays became more than the budget of the military. The US not only had twin deficits and hollowed out industrial base, but its empire status was being challenged by a rising China. This became glaringly obvious when US and other G7 nations imposed the most severe sanctions possible against a nation against Russia for invading Ukraine. In my view, Biden truly believed that he could bring Russia to its knees within weeks by imposing the sanctions and seizing Russian assets. But he had failed to account for the growth of China and to a lesser extent India. Putin was able to withstand the sanctions by selling oil to China and India. He also used Russian reserve gold as collateral to withstand the sanctions.

When Biden seized the Russian assets in the hope of bringing Russia to its knees and failed, the trust in the US dollar was severely undermined. At any point of time, the US and its allies can potentially seize the assets of a nation state. The global south countries needed an alternative asset that could be used if sanctions were imposed. They started to diversify some of their holding into gold. The US dollar reserve currency and the control of the SWIFT system gave US and its G7 allies extraordinary privilege. If we were to use game theory and all the nations in the world as participants, then the US would always win the game because of this privilege. So countries always played by the rules set by the US. However when Russia proved that it could withstand the sanctions, the aura of invincibility was lost.

The above is the background upon which the article is going to branch out. All of the following are hypothetical and speculative and is not based on facts. It is based on game theory application of the current geo-economic conditions. It is an attempt to explain the current rally in gold and speculate on how far the price can go. This is done based on Muffett’s belief and should not be construed as investment advice. Also this post is not political and the focus is on the investment thesis around gold. It is our belief that the rivalry between US and China will be fought on multiple fronts but principally economic. If there is direct conflict, then it will end in a nuclear war and the end of the world. On this basis, each will try to cause collapse of the other by economic means and make then accept defeat. It is important to realise that the Chinese government also has signficant debt equalling that of the US. But this debt was built up to develop infrastructure and support for key industries which the CCP has deemed as strategic. They also run a huge current account surplus.

The 4 key elements of Trump’s plan:

1.Negative real interest rates:

Trump has not talked about this much. But the actions of the current administration is clear. At one point Trump even said that he did not care about the stock market. His main aim was to reduce the 10 year yield to reduce the interest burden of the burgeoning debt. The Trump’s economic team have repeatedly put pressure on the Federal reserve to cut rates. The hope is that if they can cut the fed funds rate aggressively, then the yield on the 10 year will also follow. To this end he has also put in Mr.Miran in the FOMC policy team and he has been calling for a 300 basis point cut in the interest rates. Now if the can keep the 10 year below the inflation, then over a period of time, the debt will be inflated away. This is has been done before in the 1970’s following the end of the 2nd world war.

Stock market and housing inflation:

The idea here is to create conditions conducive for stocks and housing prices to gain. This will give an illusion of wealth for the people who own stocks and housing. A recent survey put nearly 42% of US households have their savings in the stock market. Although housing inflation has not been there because of higher rates, if Trump can manage to reduce the interest rates, then this could spark another round of house price rises. Between April 2025 to october 2025, $15 trillion has been added to the US equity market. This will increase the financial component of the US GDP and in a way reduces the overall Debt GDP ratio. Another important consideration is that the US government gets 3-6% of its income from capital gains taxes. However during years where the stock market has done exceptionally well, then the capital gains take could reach upto 10% of the total revenue. So certainly good for Trump’s cause.

The role of crypto currencies and stable coins:

Since Trump got elected the Coin market cap has increased by $550 billion. Trump administration has passed the Genius act to make it compulsory to hold US teasuries to back stop these stable coins. The idea here is as the crypto market cap increases, the use of stable coins will also increase and this will increase the demand for the treasuries. Hopefully the treasury would be happy to issue them with lower yielding bonds.

Trump’s Ultimate weapon:

The U.S. officially holds ~8,133 metric tonnes of gold—about 261.5 million troy ounces—stored at Fort Knox, West Point, and the Denver Mint (plus custody at the NY Fed). On the government’s balance sheet, Treasury “gold certificates” issued to the Fed are carried at $42.22/oz, a statutory relic from another era.

Implication: When spot gold trades at several thousand dollars per ounce while the books say $42.22, there’s an enormous unrealized valuation gap. Changing that book value would require legal/legislative action and coordinated accounting between Treasury and the Federal Reserve.

How a revaluation could work in principle

There are several conceptual pathways (all politically and legally non-trivial):

Statutory reset of the official gold price.
Congress (and/or Treasury under existing authorities) changes the official valuation of gold on the balance sheet—say from $42.22 to a new reference figure closer to market (or a policy target). The revaluation gain would show up as capital (or in a revaluation account) somewhere in the official sector.
Treasury issues new “gold certificates” to the Fed at a higher price.
The Fed would book a higher-value asset; Treasury would receive a corresponding credit that—depending on design—could flow to the Exchange Stabilization Fund (ESF) or another vehicle. The aim would be to generate usable fiscal capacity (without net new market borrowing) while keeping monetary control intact.
Caveat: The Fed’s independence and remittance rules matter; you can’t simply “spend” revaluation gains without tripping governance and legal constraints.
Create a Gold Revaluation Account (GRA).
Many central banks park valuation gains in a revaluation reserve that cannot be spent like ordinary revenue. A U.S. variant could explicitly limit cash use to debt-management purposes (e.g., collateral, backstopping a bond program) to appease institutional concerns.

Trump’s radical plan and gold’s surge: