Buy hard assets like gold ahead of a potential bond market panic, says Bear Traps' Larry McDonald

CNBC

10-06-2025

The potential issuance of more than $1 trillion in new government debt could make commodities a smarter defensive plays than bonds, according to "The Bear Traps Report" founder Larry McDonald. McDonald estimated that in the six months from September 1 through about February the U.S. is looking at about $1.5 trillion of new debt issuance from government. That would amount to about $600 billion more than last year, McDonald said, and the issue could be exacerbated by any delay in the tax-and-spending bill that recently passed the House of Representatives. The idea is that the large new issuances of bonds, and the forecasts for a continuing annual deficit of the federal government, would put more pressure on a bond market that has already seen volatile moves in yields so far this year. "We think $4 to $6 trillion is going to move from financial assets — which are just paper certificates, right, stock certificates, bonds — over to hard assets," McDonald said on " Squawk Box ." Those hard assets could be precious metals, like gold, silver and platinum, which have already performed well in 2025. McDonald also said that agricultural commodities could be an area to watch. "The old 60/40 portfolio should maybe be 30/30/30/10, in other words a much larger component of commodities," where the 30% slices are bonds, stocks and the commodities and the 10% piece is cash, he added. @GC.1 YTD mountain Gold futures YTD It can be difficult for individual investors to gain large exposure to hard assets directly, but there are many ETFs on the market that buy and hold commodities or commodity futures. For example, the Invesco DB Agriculture Fund (DBA) has about $860 million in assets under management, and SPDR Gold Shares (GLD) has about $100 billion in assets. To be sure, McDonald did not predict that a bond market panic will necessarily happen within the next 12 months. He said that Treasury Secretary Scott Bessent has been making moves to help the bond market. One of those is a potential change the supplementary leverage ratio, expected this summer, which would allow banks to hold more government debt on their balance sheets. McDonald is also the author of the new book "How to Listen When Markets Speak."