USAGOLD/Peter Grant/05-16-17
Gold is trading higher today, boosted by fresh 6-month lows in the dollar index. The yellow metal moved to a new 2-week high of 1239.10, as the DX slid to levels not seen since the U.S. election in November.
As we discussed in this morning’s snapshot, the unevenness of recent U.S. data and growing doubt about the Trump agenda have conspired to lift growth risks. Soft inflation data that came out last week has added to concerns that the so-called “reflation trade” may be losing momentum. Both PIMCO and Goldman Sachs have raised concerns that inflationary pressures may be stalling, which would reduce the likelihood of rate hikes later in the year.
Additionally, as mentioned in yesterday’s DMR, the Fed basically financed 40% of last year’s deficit. Even bigger deficits are expected moving forward, whether President Trump’s fiscal policies are enacted or not. Higher rates, the associated higher dollar and balance sheet normalization don’t seem to jibe with that scenario. In fact, it will make financing our debt all the more difficult.
The debt ceiling is going to have to be lifted or suspended by the end of the fiscal year in September, and likely sooner. The trend illustrated in the chart above is unstoppable. There has never been a debt ceiling our policymakers couldn’t ultimately exceed and that is not going to change.
Perhaps of greater concern is the debt/GDP ratio, which has recently taken a turn higher for the worse. The CBO warned earlier this year that the U.S. is “highly leveraged in debt by historical norms and on an unsustainable long-term fiscal path caused by a structural imbalance between revenue and spending.”
Anyone who has managed a budget — business or personal — knows that you can’t indefinitely spend more than you take in. In fiscal year 2016, the U.S. government took in $3.3 trillion, but spent $4.5 trillion. Credit can delay the inevitable, but eventually there comes a day of reckoning. We come closer to that day with each flip of the calendar.
Of course our government has one trick up its sleeve not available to businesses and households: They can print money. In fact, they can print the global reserve currency. And print they will . . .
The best hedge against currency debasement is gold. Physical gold, in your possession.
