Happy Sunday, GoldBuzzers!

You may not have heard of Judy Shelton. Until last month she was an economist with an unusual idea and no official office. Now she's sitting next to the US Treasury Secretary, at the exact moment Goldman Sachs is telling clients that nobody wants to buy long-dated American debt any more. Her idea is a government bond you can cash in for gold.

This week's Deep Dive looks at how it would work, what the numbers really say about it, and why I think her timing matters more than her title.

Ok. Let’s get into it. ⬇️

Gold held just under $4,140 an ounce on Friday and silver sat just above $60 after the September jobs report landed far weaker than anyone expected. The US economy added only 29,000 jobs against forecasts of 90,000, and the unemployment rate ticked up to 4.2 percent.

Wage growth slowed too, with annual gains easing to 3.0 percent, the softest pace since May 2021. That cooled expectations that the Federal Reserve will raise rates at its late-October meeting.

Markets now put the odds of a hike this month below 20 percent, down from close to 70 percent earlier in the week, though a December move is still widely expected. Fed officials Philip Jefferson and John Williams had already nudged those odds lower by urging more time to judge whether further increases are needed to tame inflation.

Since gold and silver pay no interest, fading rate pressure takes some weight off both, even after another down week for the pair.

In a normal bond market, Judy Shelton's arrival at the Treasury would have been a footnote. She joined last month as counselor to Treasury Secretary Scott Bessent, and the New York Times reported the move on September 16. The timing is what makes it very interesting.

The 10-year Treasury yield touched 5.34 percent on Thursday, its highest since 2002, and Goldman Sachs' trading desk is telling clients that long-dated government bonds still can't find a serious buyer. The person now advising Bessent has spent more than a decade arguing that the long-term fix for the US debt problems is a Treasury bond you can cash in for gold.

Bessent has already been working on the problem. The Treasury has expanded its program of buying back its own long-dated bonds, and he's already said that yields would be even higher without those purchases. That's the plumbing side of the job, and Shelton is there for the ideas.

What she's actually proposed

Shelton's plan is much more specific than the phrase "gold standard" suggests. In a 2012 paper for the Cato Journal she described what she calls Treasury Trust Bonds: long-dated bonds that pay no interest along the way, which the holder can redeem at maturity either for the dollar face value or for a fixed weight of gold, whichever they prefer.

The logic runs like this. Lenders who worry the dollar will lose value against gold get built-in protection, and in return the Treasury should be able to borrow more cheaply. She revisited the idea in a Wall Street Journal essay last October and has spent much of the past year pushing for a first batch to be issued on July 4, 2026, to mark the country's 250th birthday.

That date came and went with no bond. Three months later she's now inside the building.

The gold is real, and the arithmetic is awkward

The United States still holds about 261.5 million ounces of gold, and it carries them on the books at $42.22 an ounce, a price fixed by law in 1973. At Friday's close of $4,142, that stockpile is worth about $1.1 trillion. Set against federal debt that's just passed $40 trillion, that's a down payment, not a full backing.

Shelton has always been clear that's the point. Her bond is a voluntary claim on a defined amount of gold, not a promise to redeem the whole national debt in metal. But any conversion price high enough to interest foreign central banks would effectively revalue the gold certificate the Federal Reserve has carried for decades at a little over $11 billion. That takes an act of Congress and a political fight, not just a memo from a counselor.

What Goldman's desk actually said

Here’s where I think this gets interesting. On October 1, Rich Privorotsky, who runs Goldman's one-delta trading desk, wrote that the long end of the Treasury market was "still totally bidless."

Softer inflation data had barely moved long-term yields, he said, and the situation needed to calm down. The phrase went viral, and plenty of people pointed out that a trading desk talking up its own book isn't the same as a market that's stopped working.

Both things can be true. "Bidless" is trading desk slang for a market that won't absorb big sales unless the seller cuts the price. It doesn't necessarily mean auctions are failing. Treasuries are still being sold, but at yields that cost the government much more in interest and make long bonds a less reliable cushion against stock market losses.

It also explains the chart at the top of this piece: when a government bond pays 5 percent and gold pays nothing, some investors will take the 5 percent, which is why gold has slipped since late August even as the debt worries that usually help it have grown much louder.

Where the two stories meet

Shelton's case has always been that lenders who fear a weaker dollar will accept a lower yield if you give them a gold option, and that the option can be written against gold the Treasury already owns. The bond market is saying lenders already want compensation.

Whether a gold-convertible bond would borrow more cheaply than today's Treasuries, or just attract a different set of buyers, is a question nobody has yet tested. The natural audience is foreign reserve managers who've been adding bullion and, in Japan's case, selling US bonds.

None of this makes a gold-linked bond imminent. A counselor doesn't set the auction calendar, and the Federal Reserve is a separate institution where Shelton's own nomination stalled in the Senate in 2020. So far, Scott Bessent's answer to the bond market has been more buybacks, not issuing a new security.

What it means for gold

A symbolic appointment doesn’t change anything… yet. A pilot bond that gives a holder the right to physical metal would be a direct claim on a finite stock, and it would put a number on the price at which the United States is willing to swap gold for greater credibility.

Until that number is actually named, Shelton's presence tells you about the serious debate going on inside the Treasury. The US bond market Goldman called “bidless” is what keeps that debate very much alive.

That’s all for this Sunday, folks. I’ll see you on Tuesday.

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Rick Adams
Founder, GoldBuzz
rick@goldbuzz.com