US gold revaluation could wipe out 70 per cent of budget deficit amid West Asia conflict

NEW DELHI: The United States could potentially eliminate a massive portion of its budget deficit by changing how it values its gold reserves as the West Asia conflict continues. A recent report by SBI Research states, “The corresponding revaluation reserves would create a massive jump in assets first, wiping ~70% of US Budget deficit”.

While these reserves are currently valued at prices from 1973, updating them to current market rates would provide a significant financial cushion during global instability.

The ongoing conflict in West Asia is causing significant worry for the global economy as it spreads across different regions and markets. The SBI Research report explains, “Should the raging conflict in the Middle East proliferate asymmetrically across jurisdictions, asset classes and supply chains, the cumulative shock could trigger a new wave of inflation globally”.

However, the United States is currently in a position where it could actually gain from this extended war because of its massive energy resources. By using its large oil and gas capacity and shifting supply to Europe, American companies may earn enough to cover the costs of the conflict.

The SBI Research report notes, “With the supply-supply chain triggered squeeze anchoring higher spot and forward prices across gas and oil, the US enterprises could reap benefits that more than adequately compensate the spending on war”.

This shift is part of a larger global trend where central banks are moving their money away from US government bonds and putting it into gold instead. For the first time in nearly thirty years, these banks have significantly changed their strategy to favour gold over traditional treasuries.

The SBI Research report highlights, “Central banks are shifting away from treasuries to gold holdings. The transition happened in Jun’25 for the first time since 1996.”

The closure of the Strait of Hormuz, a vital path for “20% of the world’s crude oil”, is also pushing energy prices higher and making markets nervous. This has led to fears that inflation will stay high, causing interest rates to remain elevated for a longer period.

The SBI Research report points out, “Increasing oil prices have raised the fear of energy-driven inflation, making markets expect a higher Fed rate for longer.” (ANI)