March 2023 - Week 1 Edition

Federal Reserve Failures and Interest Rate Hikes Impact Gold

Metals and the stock market fell again this past Friday when the Federal reserve’s favorite inflation indicator, the Personal Consumption Expenditures (PCE) surged by 0.6% in January, compared with just 0.2% in December. The “core” PCE, excluding food and energy, also rose 0.6%, indicating that inflation is far from tame, or declining, providing evidence that the Fed will raise interest rates at least two more times.

Gold and Stocks Fell in February After a Strong January

The first two months of 2023 were like night and day – except “day” came first, with a strong January.

February was dismal for both gold and stocks, as the Dow fell 4.2% and gold fell over 5%, mostly because the U.S. dollar recovered from its four-month slide (October through January). That, in turn, came because inflation revived in all of the major indicators – the Consumer Price Index (CPI), Producer Price Index (PPI) and Personal Consumption Expenditures (PCE) index for January, released in February.

February U.S. Mint American Eagle Sales Continue to Decline Due to Production Challenges and High Premiums

Sales of the Silver American Eagle coins declined 40% in February 2023 vs. February 2022, and February sales of Gold American Eagle coins fell even more, by over 46%, widening the declines from January. Sales of the Gold American Buffalo bullion coins declined by a similar 46% in February, year-over-year.

The U.S. Mint continues to suffer from extremely high premiums on its Silver American Eagle coins. The Silver American Eagle is prohibitively expensive, compared to other mint’s similar bullion products.

The January 2023 Silver American Eagle sales were 21% below last January (2022) sales, while Gold American Eagle coin sales were 19% below last January’s sales. Total 2023 sales are over 20% lower.

The U.S Budget Deficit is on Pace for $1.3 Trillion in 2023 & $20 Trillion in a Decade

We’re two months into a Republican-controlled House of Representatives but there is no sign yet of a slowdown in government spending. Both parties are trying to outbid each other in aid to Ukraine, while the Biden Administration is putting forth more massive spending programs and not many Republicans or Democrats are putting up STOP signs yet. Meanwhile, there is a looming debt ceiling debate. The cumulative public debt is over $31 trillion and rising. During the first four months of this Fiscal Year (2023), beginning October 1, 2022, the federal government has amassed a $459 billion deficit – an annual rate of $1,377 trillion.

Apparently, we must now accept trillion-dollar deficits every year from now on and increases of $10 trillion or more per decade (the deficit has risen over $20 trillion in the last 15 years, since 2008).

During the past four months, federal outlays were roughly $2 trillion, a 12% increase over FY-2022, while federal tax revenues were only $1.5 trillion, a 3% decrease, reflecting a slowdown in the 2022 economy.

Last month the Congressional Budget Office (CBO) projected an increase of $20 trillion in the public debt in the next 20 years, or $2 trillion per year, raising the cost of serving that debt to $1.4 trillion per year. This could cripple the government from funding many of its regular and necessary programs while fueling higher inflation if the Treasury and Federal Reserve take the normal historical route of “monetizing” the debt by printing more money to fund their programs and pay off Treasury bondholders. All this inflation and debt will push gold prices higher over time, but we have no way of knowing the time when most investors come to this realization. But like a tightly wound spring, it eventually unwinds with extra force and speed. I encourage you to routinely add more gold and silver to your portfolio. Contact our professional account representatives today to assist you.

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