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Money Metals News Alert
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December 23, 2024
– Metals prices moved lower last week. Investor appetite for safe-haven
assets remains weak.
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Despite a rally in prices
on Friday, silver fell below $30/oz, ending the week at $29.75 – down about
$1 – while gold lost about $25/oz and closed at $2,635.70.
Ten-year Treasury yields
rose above 4.5% – the highest level since June. Stocks sold off with the S&P
500 ending at 5,930 – back under 6,000. And the DXY dollar strengthened to
107.82 – its highest level in more than 2 years.
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Markets didn???t respond with glee
following last week???s rate cut from the FOMC. Perhaps the release of additional
evidence that the Bureau of Labor Statistics has been cooking the books on
employment data is weighing on stocks.
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Gold : Silver Ratio (as of
Friday's closing prices) – 88.6 to
1
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Gold and silver are among the best
performing asset classes over the past two and a half decades. The unstoppable
growth in government borrowing and spending is one of the pillars underpinning
demand for metals.
Elon Musk and the so-called Department
of Government Efficiency (DOGE) has certainly put a spotlight on cutting
government, reducing waste, and cleaning up fraud.
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Could true reform of
federal government finances be coming – or is the recent optimism overblown?
Well, last week???s
controversy over a Continuing Resolution (CR) on spending to keep the federal
government open shed some light on the topic.
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The first version of the CR was a
1,500 page monstrosity, and it failed to get enough Republican support in the
House. The version that passed was much shorter. The fact that Republicans didn???t
just pass the more bloated version may represent a sort of progress.
Leadership, both Democrat and
Republican, worked together to delay the debate over spending until the last
moment. They used the threat of a government shutdown and a delay of the Christmas
recess to artificially pressure both sides into a compromise – one that did
basically nothing to reduce spending.
Americans should probably expect a
repeat of this drama in about 3 months, when the federal government once again
bumps up against the debt ceiling.
One thing to watch for in the coming
months is how aligned Musk???s Department of Government Efficiency and President
Trump actually are on the topic of government spending.
Musk has been vocal about the need to
dramatically reduce federal spending. Trump, however, has never been a budget
hawk.
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Trump may not be planning
to use the cap on federal borrowing as a tool to force spending reductions. Last
week, he advocated again for Congress to eliminate the debt ceiling. He was
unhappy when some House Republicans refused to get behind him on that issue.
The incoming president
does not appear to share Musk???s concern when it comes to the $36 trillion in
existing federal debt.
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Trump believes the debt can be managed
if there is enough economic growth. And he does not intend to take on entitlement
spending, having committed to leave social security and healthcare benefits alone.
One could say Trump is more of a
pragmatist. He understands some of the spending cuts that someone like Musk might
prefer are politically impossible to make.
Trump???s reelection does not change the
fact that Congress still controls federal spending. Unfortunately there is no sign
that Representatives and Senators are ready to talk seriously about balancing the
federal budget.
If some Republicans show up ready to
fight over extending the borrowing cap three months from now, they don???t seem
likely to get support. They may even find the President threatening to support a
primary challenge against them in their next campaign, as happened to Chip Roy
last week.
The lesson from last week is that a
proactive solution for spending growth and deficits – and by extension,
inflation – is unlikely. It will take a crisis, either in the dollar or in
the bond markets, to force politicians' hands. Investors should prepare
accordingly.
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This week's Market Update was
authored by Money Metals Director Clint Siegner.
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