US Debt Surpasses GDP: Potential Catalyst for Gold’s Next Leg Higher

US debt crisis deepening

"Yes," it's definitely a significant milestone for a country’s debt to surpass its GDP, Brien Lundin, editor of Gold Newsletter, told the Investing News Network (INN) via email.

“It’s historically been a warning sign of a debt spiral that can sink an economy. But the cold hard fact is, the US passed that marker long ago,” he added. Lundin was referring to the difference between the debt owned by the public — which is the figure currently grabbing headlines — and the total gross debt.

Debt held by the public includes money the US government owes to individuals, foreign governments and the Federal Reserve, whereas total gross debt includes public debt and money the government owes itself. That number as of the last week of April stood at more than US$38.95 trillion, representing more than 120 percent of the GDP.

“Pundits, media and government bureaucrats like to use the smaller ‘debt owned by the public’ measure of federal debt rather than the gross federal debt number that includes debt owned by government-sponsored enterprises (GSEs) like Social Security, Medicare and other retirement funds and entitlement programs,” said Lundin.

“By using the smaller measure of federal debt that stands at just about 80 (percent) of the total debt, the government understates the amount of debt and implies that the remaining 20 (percent) is irrelevant, since ‘We owe it to ourselves.’”

The Congressional Budget Office reports that increased spending on GSEs is the biggest factor behind the nation’s snowballing dent load. Lundin agrees, and pointed out that this is the debt that must be paid back, particularly the GSEs allocated to seniors, which make up a huge slice of the voting public.

The elephant in the room is the interest to be paid out on the debt itself, which now accounts for about 14 percent of total US government spending. With the Fed seeing the need to battle inflation by holding interest rates steady (and potentially raising them), the national debt crisis is bound to get worse.

US deficit spending to drive gold demand

If federal debt continues on the current trajectory, interest payments costing hundreds of billions to trillions annually will make it tough to pay for these GSEs and other spending without creating further debt.

The US national deficit reached US$1.78 trillion during the 2025 fiscal year, and is expected to come in at more than US$2 trillion this year. That means the Department of the Treasury will need to take on more debt to cover the deficit and finance the spending promises outlined in the budget.

These conditions are ripe for currency devaluation and further inflation as more money is added into the economy. Such monetary instability is a boon for safe-haven gold as a non-fiat store of value.

The further erosion of confidence in the US dollar as a reserve currency globally will also spur on more central bank gold buying, which has already become a major pillar of demand for the yellow metal in this current bull market cycle.

The Iran war may be helping to support the US dollar in the short term as oil prices remain elevated; however, the longer term impact on the greenback is painting a much weaker outlook.

“The broader issue is fiscal: the Iran war has already cost (US$25 billion) to the US government and, given the current trajectory, that figure is likely to rise. At the same time, US debt is increasing alongside expansive fiscal policies,” explained Ipek Ozkardeskaya, senior analyst at Swissquote, in market commentary shared with INN.

Ozkardeskaya said interest costs accrued by the US government during the 2025 fiscal year were on par with national defense spending — one of the largest spending categories for the US after Social Security and Medicare.

“It’s a serious issue. Debt held by the public is now close to 100 percent of GDP, and projections from the Congressional Budget Office suggest it could rise to 120 percent within a decade — and potentially 131 percent if tax cuts are extended,” she added. “As a result, global investors are gradually shifting away from US treasuries, potentially in favor of alternatives such as gold. In that context, dips in gold remain attractive buying opportunities.”