June 2023 - Week 1 Edition

Day Traders Impacting Short-Term Gold Prices, Short-Term

Gold dropped below $1,950 on Wednesday, June 7, for the strangest of reasons – but that is often true of gold’s day traders: China is growing slower than expected, so demand for gold “might be” lower than expected, short-term.  Also, U.S. Treasury yields are rising slightly and “rising rates are bad for gold.”  However, neither of these correlations can be proven historically and rising rates have not harmed gold but that makes no difference to day traders. They live by their mantras, their myths and it’s “shoot now, aim later” for most gold futures traders and gold ETF traders, who manipulate the price of gold from day to day. When moving millions and millions of dollars of gold or gold ETFs based on price shifts of even a few dollars higher or lower, the profits can offset losses in other funds handled by these traders. That’s why gold has always been considered a life insurance policy for your other investments.

The “Debt Ceiling Debate” is Over but Debt Keeps Soaring … to $50 Trillion?

The much-heralded “debt ceiling debate” is apparently resolved but nobody seems very worried about the implications of lifting that ceiling and spending with abandon once again. The accumulated U.S. public debt is now closing in on $32 trillion, up over 500% from barely $5 trillion in 2001, as the U.S. has incurred annual budget deficits of over $1 trillion in about half of the fiscal years since the 2008-09 crisis.

The Congressional Budget Office now projects a federal budget deficit of $1.5 trillion for Fiscal Year 2023, and every year for the next decade. In their long-term projections, annual deficits generally increase with the 2033 deficit reaching $2.7 trillion. This year’s deficit equals 5.3% of GDP, rising to 6.1% of GDP in 2024 and 2025, and soaring to 6.9% of GDP in 2033 – a level exceeded only five times since 1946.

We are in no better shape on the family level. On May 23, the Federal Reserve Bank of New York's Center for Microeconomic Data issued its Quarterly Report on Household Debt and Credit. The report shows an increase in total household debt in the first quarter of 2023 of $148 billion to $17.05 trillion. Despite the flood of cash, the Federal Reserve and Treasury poured into the hands of Americans in 2020 and 2021, that debt total is now $2.9 trillion higher than at the end of 2019 before the pandemic began.

The portion of our current personal debt becoming delinquent rose for most debt types and represents a dangerous trend for an economy where roughly 70% of GDP is consumer spending.  So now, with $32 trillion in public debt and $17 trillion in private debt, that’s $49 trillion (not counting corporate debt) or about $150,000 per person and $600,000 of debt per family of four and climbing rapidly. This is far more than we as a nation are willing to service at interest rates of 5% (and rising?) in the troubled years ahead.

All this points to a situation in which gold remains the anchor of value amid a debt-ridden dollar. Contact our professional account representatives today to find out how gold can help you plan your financial future.

Nearly ALL Commodities – Except Gold and Silver – are Falling, Some Quite Sharply

While gold is still positive, up over 7% for the year-to-date, the CRB raw industrials spot price index, which does not include petroleum or wood products, is down 20% in 14 months since April 4, 2022.

Even more astounding, the industrial metals component of the Commodity Research Bureau (CRB) raw industrial index is down 31% in the last 14 months. At first, it plunged even more – down 36% through October 31 before shooting back, up 26% through January 26 on the expectations (hope) that China’s economy would rebound rapidly after Chairman Xi Jinping lifted the strict COVID-19 lockdowns in early December but that didn’t happen. The metals index fell another 13% through June 5 on China’s weak recovery. All in all, industrial metals are down 31% in the same 14 months in which gold has risen. This is mostly due to the fact that gold is a crisis hedge and an inflation hedge and we have seen high inflation, then a crisis in the banking sector.  

The reason for this deep drop in commodities is the record-high (over $1 trillion in one year) cut in M2 (a measure of the money supply that includes cash, checking deposits, and other types of deposits that are readily convertible to cash) money supply in the last year, combined with record-high (5% in one year) increase in interest rates by the Fed.   This is what happens when the Federal Reserve makes such a huge blunder by creating high inflation and then makes an equally huge blunder in attacking inflation with deflationary strategies, as Fed Chairman Paul Volcker did in 1979-1980, creating a recession and a record rise in gold and silver prices.

Energy prices are falling, in part, because they rose so rapidly previously. Natural gas increased almost five-fold from mid-2020 through late 2022. Since then, natural gas has retreated to its pre-pandemic levels. Also, agricultural and energy prices are down in the past year because this latest 12-month period coincides with the peak prices after the war in Ukraine pushed energy and agricultural prices to a peak in June of 2022 and our government released a lot of oil from the U.S. Government’s Strategic Petroleum Reserve.

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