USAGOLD/Peter A. Grant/03-22-17
Gold is edging higher, setting new three-week highs above 1250.00. U.S. yields are under pressure, which is dragging the dollar lower as well. Stocks remain defensive after dropping sharply on Tuesday.
As investors pare their optimism on the great Trump reflation, one must wonder what they were really wishing for in the first place. The Fed has been trying to reflate the economy via extraordinary measures for nearly a decade, largely with little to no impact. That may have been because the central bank was getting no help on the fiscal side of the equation.
The election of Donald Trump, along with GOP majorities in both houses of Congress, triggered expectations that the long awaited fiscal stimulus was on its way. Those expectations have been tempered recently as initial efforts by Republicans to amend healthcare legislation may not have the necessary votes to clear the House tomorrow. Gennadiy Goldberg of TD Securities argued that such an event would spark “a significant risk-off event.”
The concern is that if healthcare gets bogged down, the broader reflation agenda is going to be delayed as well. Gold typically fares quite well in a risk-off environment.
But even if the reflation is successful, what will be the cost? The U.S. is currently $20 trillion in debt; that’s more than twice the $9.2 trillion national debt of a decade ago. “There is practically no chance that debt will stabilize or decrease,” wrote Gary Christenson for Sprott Money. Christenson suggests that devaluation of the dollar is the only option. Historic precedent is certainly on his side.
That’s a good question. And he’s not just talking about America. Debt is on the rise the world over. It’s like we learned absolutely nothing from the financial crisis, which at its core was a debt crisis. In the subsequent years, governments just borrowed more to paper over the problems of the past. That can only go on so long.
Gold is the ideal hedge, whether we get the much anticipated inflation, or continued disinflation. Christenson thinks prices will bubble higher, “sooner rather than later.”
