The price of gold has languished in recent weeks. After falling below $1,300 in May, the yellow metal has hit 2018 lows this month. Dollar strength along with the anticipation of further Federal Reserve rate hikes have bolstered the dollar and weighed on gold.
Peter Schiff has been saying this dollar strength is merely an upward correction in a bear market. Peter’s not alone in this view. Some mainstream analysts have even acknowledged the dollar surge is likely temporary.
So what about the gold market? Should we just give up on it? Well, as we’ve pointed out, fundamentals point to an overall healthy market for the yellow metal. And we’re not alone in our thinking. An article in the Economic Times of India points out three reasons gold will likely come out of its slumber. Interestingly, we’ve touched on all three of the factors this article mentions.
The Japanese and Chinese aren’t buying US Treasuries. In fact, both countries reduced their holdings in April.
According to the US Treasury Department, the Japanese disposed of $12.3 billion in US debt. Meanwhile, Chinese Treasury holdings fell by $5.8 billion.
This could be a troubling development for the US government as it scrambles to fund its massive deficits and ever-growing debt.
The US government has hit borrowing levels not seen since the peak of the financial crisis.
The US Treasury’s net borrowing totaled $488 billion from January through March, according to a statement released Monday. That was $47 billion more than the department’s estimate. It was also a record for first quarter borrowing, according to Bloomberg.
Jim Rickards called them “A-list of top-tier economists.” Michael Boskin, John Cochrane, John Cogan, George Schultz and John Taylor are all senior fellows at the prestigious Hoover Institute. And they all agree on one thing.
The US is going broke.
Last week, Pres. Trump said US markets might have to endure some short-term pain if the trade war with China escalates. But never fear, in the long run, everything will be great!
We have to do things that other people wouldn’t do. So, we may take a hit, but you know what, ultimately, we’re going to be much stronger for it.”
Peter Schiff agreed there is going to be short-term pain. And we’re also going to suffer some long-term pain.
Peter wasn’t focusing so much on the trade war, but a scenario certainly exists where Chinese retaliation could lead to some serious long-term pain for the US economy. It could pull out the ace up its sleeve.
Spending America into oblivion has become business as usual on Capitol Hill.
On Friday, Pres. Donald Trump signed a $1.3 trillion dollar spending bill. The legislation funds the federal government through the remainder of the 2018 budget year, which ends Sept. 30.
The bill directs $700 billion to the military and $591 billion to various domestic agencies. According to the Washington Post, military spending will increase $66 billion over the 2017 level, and the nondefense spending comes in at $52 billion more than last year.
The federal debt keeps climbing upward and there is no indication that this has raised even a slight concern in Washington D.C.
We’ve been focusing a lot on the federal debt in recent weeks. We’ve explained that debt is a cancer on economic growth. We’ve raised the question: who is going to buy all of the Treasuries the government will have to sell to finance all of the debt. And we’ve talked about the impact of rising bond yields on the US budget as the cost of servicing the massive debt rises.
There’s a lot of bearish economic news when you factor the federal debt into the equation. But the spiraling debt might actually be bearish for gold. In fact, over the last two decades, there is a positive correlation between increased federal debt and the price of gold.
The mainstream investment world is starting to worry about the federal debt.
Goldman Sachs sees a tidal wave of red ink — and it may drag the US economy into its undertow.”
Goldman recently released a note to clients saying virtually the same thing Peter Schiff has been saying for months. The US economy won’t likely get the promised economic growth out of GOP tax cuts – at least not over the long-haul.