Geopolitical risks in the Middle East, a weaker dollar and softer Treasury yields are giving Gold a temporary boost.
Risk-averse investors, finding the Syrian crisis something that might escalate, are buying the yellow metal.
As expected, Oil is at a 4-year high as tensions rise between Iran and Israel. Bank of America is calling Oil to trade over $100 dollars a barrel next year. If this develops, inflation numbers should rise, giving the Feds more ammunition to keep an aggressive rate posture.
On the equity side, the CBOE VIX Index, otherwise known as the fear index, is at its lowest level since January this year. The equity investors are very content with the action in the markets as first quarter corporate earnings continue to be reported above expectations.
Unless something unexpected happens in the Middle East I don’t expect higher Gold prices in the short term.
National Debt and The Price of Gold
As I sit here trying to write about a Gold market that moves at the speed of a glacier, I can only think of our rising costs of our country’s debt and what effect it will have on the price of Gold going forward.
The Centers for Medicare & Medicaid Services (CMS), previously known as the Health Care Financing Administration, estimates that in 2025, national health care spending will outpace the growth in the United States’ Gross Domestic Product (GDP) by 1.2 percentage points. As a result, CMS estimated that health care spending will account for 19.9 percent of GDP by 2025.
In other words, in the year 2025 healthcare costs will reach nearly 5.5 trillion dollars.
In fiscal year 2017, the Social Security administration said that the cost of Social Security for the first time surpassed 1 trillion dollars. Government agencies project that by the year 2034 Social Security will only be able to pay 75 percent of the benefits that participants are set to receive.
Interesting! Now that you read this, how are you feeling about the tax cut you received this year?
We all know about the correlation between the U.S. dollar and gold prices; that they are inversely related. But, what about the relationship between the U.S. debt and gold prices? If we take the data for 2000 – 2018, gold and debt showed a positive co-monthly correlation of 87 per cent. But, since 2012 we have seen a divergence from the positive correlation, with gold prices falling to $1,300 after hitting $1,920, as the U.S. debt kept on increasing at a similar pace. The U.S. debt has now reached OVER $21 trillion. This astronomical number is greater than the combined debt of all the countries in the world. No other nation in history has ever accumulated this much debt.
The U.S. government is under pressure to close the fiscal deficit. They have started taking steps in form of a trade war with China and Europe. However, the Department of Treasury announced plans to borrow nearly one-trillion dollars this fiscal year, that’s an 84 per cent increase from last year.
How we doing, I ask?
So what’s the answer? Do any of you out there really believe that our government has any intention of paying back this debt or have concerns about the entitlement programs can bankrupt this great nation?
All they do is keep raising the debt ceiling with no regard to the outcome.
Eventually, the world will wake up and think how can I get my hands on physical gold, that will be the only product that can offset this wild uncontrollable debt.
The question is: Will you be too late? You remember a couple of years ago when getting your hands on physical Gold became a problem for many who waited 2 or 3 months to get their orders filled? Some Sovereign Mints and refiners were working around the clock to meet the demand. Remember, there isn’t an infinite amount of Gold around the world to meet everyone’s needs if a crisis surfaces.
The clock is ticking. Are you on board?
Try to have a wonderful Friday.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.