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Money Metals News Alert
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November 18, 2024
– Gold and silver prices slid lower for a third week in a row but are
rebounding today. The October rally in prices ended just before Election Day, and
markets are still adjusting to Donald Trump???s victory.
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Stock prices, which took a
big jump immediately following the election, sold off last week. The U.S. dollar
Index rallied from just under 103.42 on Nov. 5th to 106.67 at Friday???s close.
10-year treasury yields rose to 4.44% – the highest weekly close since June.
For now, monetary policy
and the impact of the Fed???s November 7th rate cut are taking a back seat to
politics.
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Gold : Silver Ratio (as of
Friday's closing prices) – 84.6 to
1
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Inflation Isn???t Likely to Go Away
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Gold and silver futures speculators
began selling contracts in anticipation of a Trump victory. Thus far, the selling
continues after his win.
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The markets may have
simply been overbought, after big moves higher in October. However, the impact of
the election cannot be discounted.
The initial sentiment from
Americans at large, and precious metals investors in particular, is that change is
coming to Washington DC. Confidence is on the rise, and that means lower demand
from buyers looking for a safe haven and inflation hedge.
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There may be reason for hope of fiscal
reform, but investors will want to temper that emotion with reality. There is a
lot of difficult work to be done, and it won???t be completed without plenty of
institutional resistance.
The list of presidential appointees,
for example, has many buzzing with anticipation. The reality is the Senate
confirmation process won???t start for a couple of months. The candidates will get
opposition from Senate Democrats and Republicans like Susan Collins and Lisa
Murkowski.
Last week, Senate Republicans
installed John Thune as Majority Leader. His track record indicates he is more
closely aligned with Mitch McConnell – the former majority leader –
than with the president-elect.
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The number and the power
of entrenched interests who will fight reforms in Washington DC should not be
underestimated.
Likewise, the new
administration has its work cut out for it when it comes to subduing the
inflationary forces which have been driving metals prices higher in recent years.
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The portion of the U.S. budget
available for wholesale cuts is called ???discretionary spending???. It represents
just a small portion of overall spending. It was only 27% of the total federal
budget in 2023. It includes:
- National Defense:
Approximately $742 billion in 2023
- Nondefense: Approximately $935
billion in 2023 for categories including:
- Education and workforce
development
- Science and research
- Infrastructure and
transportation
- Healthcare and social
services
- Law enforcement and public
safety
Last year, the U.S. government forked
out approximately $1.7 trillion on discretionary spending. How much of that can be
eliminated? Even relatively small, proposed cuts will be greeted with angry
opposition by special interests and their allies in Congress.
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Nobody in Washington,
including the president-elect, has announced plans to touch entitlements –
Social Security, Medicare, and other government assistance programs.
The trouble is deficits
are forecasted at $2 trillion per year for the next 10 years. If Elon Musk and
Vivek Ramaswamy, through their newly created Department of Government Efficiency,
are able to trim $1 trillion from federal spending, the deficit will still be $1
trillion per year.
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The incoming regime is also an
advocate for Fed stimulus – lower interest rates and other inflationary
monetary policy.
The infamous U.S.
Debt Clock isn???t going to start spinning in reverse any time soon. If it is
possible to balance the federal budget, some very hard political choices will have
to be made. Until then, Federal Reserve note ???dollar??? will likely continue to
weaken relative to tangible goods, especially gold and silver.
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This week's Market Update was
authored by Money Metals Director Clint Siegner.
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This copyrighted material may not
be republished without express permission. Offer only available through email
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