Gold looked very strong through mid-November. Trends in September and October had been pointing to a breakout. The market delivered sending gold up through $1870. Unfortunately, hard resistance kept the bulls in check, despite repeated attempts to breakthrough.
The previous price analysis presumed that a Brainard nomination at the Fed would be the catalyst needed to break through $1880. It also assumed that a Powell nomination, though expected, would bring gold back down to some extent.
Unfortunately, the gold market took the Powell news harder than expected.
Gold and bonds are both considered to be safe havens. But in a recent podcast, Peter explained why bonds are not a safe haven in an inflationary environment. In fact, bonds – including US Treasuries – are risk assets when inflation is running hot. If you want safety from inflation, you need to buy gold.
The Federal Reserve expanded its record holdings of US Treasuries in the fourth quarter of 2020 as it continued monetizing the massive federal debt.
The Federal Reserve added another $253 billion to its Treasury holdings in Q4 according to the Fed’s Treasury International Capital data released on Feb. 16. That brought the central bank’s US bond holdings to $4.7 trillion. The Federal Reserve now holds a record 17.5% of all US debt.
Over the last year, the US government had borrowed over $4.2 trillion. The national debt now stands well above $27 trillion. There is no end in sight to the borrowing and spending and that raises a significant question: who is going to buy all of the bonds necessary to finance the government spending machine?
Not too long ago, Uncle Sam could count on foreign investors to gobble up a big chunk of his IOUs, but times are changing. In 2008, foreign investors held more than half of the outstanding Treasury debt. Today, that amount has plunged to the lowest level since the turn of the century.
The US government has borrowed $4.2 trillion in the last 12 months, pushing the total national debt to over $27 trillion. In order for Uncle Sam to borrow, somebody has to lend. So, who is buying all of these government bonds?
Foreign and domestic investors, commercial banks and US government entities all buy US debt, but increasingly, the Federal Reserve is backstopping the market and making this borrowing binge possible.
The 2020 budget deficit surged passed $3 trillion in August even as the US government continues to borrow and spend at a torrid pace. Since March, the federal government has added $3.3 trillion to the national debt. That is on top of the $1.4 trillion in debt Uncle Sam piled on in the 12 months through February 2020.
So, who is buying all of this government debt?
There are a lot of buyers out there, but when you boil it all down, the US government wouldn’t be able to maintain this level of borrowing and spending without the backstop of the Federal Reserve.
The Chinese are threatening to dump US Treasuries even as the federal government borrows money at a torrid rate. If the Chinese were to follow through, it could wreak havoc on the bond market and send interest rates surging despite the Federal Reserve’s best efforts to hold them down.
Peter Schiff recently called the stock market the biggest bubble ever. But he says he should have qualified that by saying it’s the biggest stock market bubble ever. There is an even bigger bubble floating out there – the dollar bubble. Peter talked about that in his podcast.
July was a month for the record books.
The Nasdaq and the S&P 500 had their highest monthly closes ever. Meanwhile, gold broke its all-time price record and is knocking on the door of $2,000 an ounce.
On the flip side of stocks, gold and silver going up, the dollar going down. In fact, Peter said that’s a better way to look at it.
Celsius Network, founder and CEO Alex Mashinsky calls the bond market, “the biggest bubble that hasn’t burst yet.” And when the massive bond bubble pops, that’s when the real earthquake begins.
The US Treasury Department is pumping out bonds like there’s no tomorrow. It announced this week that it plans to borrow $2.99 trillion in this quarter alone. The projected borrowing for fiscal 2020 comes in at a staggering $4.48 trillion.