This chart indicates that gold got ahead of itself during the depths of the recession, but then overcorrected, causing its value to fall just as far downward in 2015 as it had swung up in 2011. Now gold is rising again in relation to the debt. If it gets back to its historical tendencies, gold should rise to $1,800/oz by the end of 2018. Even conservative estimates put the national debt at $25 trillion by 2022. So, gold will make a healthy gain if it only tracks parallel to rising debt. But increased debt leads to higher debt-servicing payments, hence less federal spending for economic stimulation, hence less economic growth as a direct result of greater spending, higher debt, and higher interest rates. It’s an ugly and vicious cycle.
Over the last 6 weeks, Congress has added trillions of dollars to future federal budget deficits. The Tax Cuts & Jobs Act alone, passed in the end of December, will add an estimated $1.5 trillion to 10-year deficit projections. The Congressional Budget Office reported that they expect debt as a percentage of Gross Domestic Product to reach as high as 8%. Vicious! Meanwhile, following the 2008 Collapse, the Bank of Japan, Central European Bank, and the Fed bought and held almost $14 trillion in Treasuries. Fed Chairman Powell has announced that he intends to continue increasing interest rates, while curtailing purchases, and actually selling off $1 trillion in 2018. Unless a large new buyer steps in, these actions will combine to drive down the price of Treasuries and increase yields, further exacerbating Treasury woes and depressing economic growth.
Unemployment continues to fall, as the average wage continues to rise. Unfortunately, the lion’s share of wage growth is being distributed among the top 5 percent of earners. Looks good on paper, but supplies little to no relief to a struggling middle class. The dollar lost ten percent last year only looks weaker going into 2018, particularly since China has successfully managed to circumvent the petrodollar, with more than twenty countries, by way of with their oil for Yuan/Gold program via the Shanghai Energy Commission. At the same time, Russia cut a deal with Saudi Arabia to sell them the S-400 Defensive Missile System, which disembowels the last remnant of the 1974 Oil in dollars agreement that was negotiated by Kissinger with then King Faisal.
So, pending an “official” announcement, the status of the U.S. dollar has essentially been reduced or even eliminated as the premier global reserve currency. Combined with the President’s new deficit spending program, our growing debt and increasing interest rates will cause investors to demand higher yields to compensate for debt risk and inflation. Rising bond yields and inflation will reduce the potential value of anticipated stock dividends and corporate earnings. Lower income streams will reduce stock prices, which permits the government deficit to choke U.S. stock market growth. Gold not only has long term growth potential, but outrageous short term hedging protection capabilities. Call the Retirement Experts at American Bullion, at (800) 553-GOLD (4653), to determine an appropriate level of portfolio protection. But no matter what, don’t get caught without a chair when the music stops!
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.