This analysis focuses on gold and silver data provided by the Comex/CME Group. See the article What is the Comex for more detail.
Silver: Recent Delivery Month
First Position Day is when contracts must post 100% margin to stand for delivery. Once delivery begins, contracts can settle in cash, or more contracts can be opened and stand for immediate delivery (usually a sign of strong physical demand). Figure 1 below shows the last 24 months of silver delivery data when compared to First Position and the day
The US Budget Analysis shows the deficit or surplus of the US Federal Government. A deficit occurs when spending (outlays) is greater than income (receipts). When the US Budget is in deficit (which it has been for over 2 decades), it accounts for one of the two components of the Twin Deficits. The trade deficit accounts for the other component which was previously analyzed for May 2021. To cover the deficit, the government borrows money from the public (or from the Fed). The latest borrowing report was reviewed in the June debt analysis.
Many variables can drive the price of gold and silver. These include Fed meetings/speeches, inflation data, jobs numbers, risk appetite, etc. Some people speculate that the price is suppressed and manipulated by the banks and Fed. While coordinated suppression is not impossible, there are other more probable explanations for gold and silver price action. This price action manifests with changes in Open Interest in futures contracts traded on the Comex.
The US Government is on an unsustainable debt trajectory. Even though the Federal Reserve has acknowledged this fact, most mainstream figures consider it a distant problem or even not an issue at all. The argument highlights that debt fears have raged since the debt crossed $1T decades ago and no negative consequences have materialized. This analysis digs into the detail of the debt to show why the US Government is at much greater risk than even a few years ago.
This analysis focuses on gold and silver within the Comex/CME futures exchange See the article What is the Comex? for more detail. It provides historical context and defines many of the terms used below.
While it is exciting to track the countdown to First Notice to determine how many contracts will stand for delivery in a given month, the real movement of metal occurs in the stock report which shows metal entering and leaving the Comex system as well as ownership of physical metal. The charts and tables below analyze this data to track the change in trend that occurred with the Covid pandemic in early 2020 as noted in What is the Comex?.
The US trade balance shows the deficit and surplus of US trade for imports and exports. A deficit occurs when imports are greater than exports. When the trade balance is in deficit, it accounts for one of the two components of the twin deficits. The fiscal deficit accounts for the other component and will be reviewed in a later article.
TTM = Trailing Twelve Months
This analysis focuses on gold and silver data provided by the Comex/CME Group. The Comex allows investors/traders to gain exposure to commodities using futures contracts. Contracts can settle for delivery of the physical commodity. Tracking the demand for physical metal can give better insight into the market. See the article What is the Comex for more detail.
- If the Fed tapers QE, it may reveal waning appetite for long-term treasuries
- The Treasury may have used its cash balance reserve to anchor inflation expectations
- If inflation persists, the Fed may have to increase rather than decrease QE
Note: By definition, inflation is an expansion of the money supply. In this article, inflation will be used interchangeably with rising prices (usually as a result of money supply expansion)
3 Key Takeaways
- The US Government has over $28 Trillion in Debt
- Much of the debt is short-term, making it extra sensitive to higher rates
- Higher Interest Rates would immediately start putting strain on the Federal Budget
Introduction
The US has over $28 Trillion dollars in debt and it continues to grow at an alarming rate. Even before COVID-19, the problem was becoming unwieldy. Ironically, despite adding $4T+ in debt over the last year, the pandemic may have given the US Government a short-term reprieve as it gave the Federal Reserve a green light to drop rates back to zero.
