Analyst: U.S. Debt and Record-Low Yields Are Driving Gold Prices

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Although gold has had many drivers powering its remarkable summer upswing, Forbes contributor Frank Holmes highlights two tailwinds that could prove to be key players for the metal’s value in the short- and long-term: the ballooning U.S. debt and the record-low yields, both domestic and global.

In his analysis, Holmes points to some very concerning statistics regarding domestic debt. The federal budget deficit for the 2020 fiscal year has passed $1 trillion, an unprecedented development during a time of perceived economic stability. The figure goes in line with the constantly expanding U.S. national debt, which now sits at $22.5 trillion. Holmes is also wary of the latest estimate by the Congressional Budget Office (CBO), which forecasts a federal debt amounting to 144% of local GDP by 2049.

Regarding yields, it’s well-known that many top economies have sunk their bonds into low or negative territory, and the landscape looks very much alike on the corporate side. This has revived the issue of corporate debt, which was a major ingredient in the 2008 financial crisis. Large companies made full use of all-time low yields for corporate bonds, as they rushed to borrow as much money as they could. As Holmes notes, giants like Apple and Coca-Cola have been among the record 49 companies to borrow a combined $54 billion through the past Wednesday.

In regards to central banks, Holmes cites Rick Rieder, chief investment officer at BlackRock, who believes that the official sector has entered something he calls the “monetary policy endgame”. Recent years have shown that central bankers have no qualms about slicing rates into negative territory and employing as much quantitative easing (QE) as they wish. The latter point has sparked talks about currency debasement, with many investors feeling that previously-marquee fiat currencies are no longer instilling the confidence that they once did.

Rieder and Holmes agree that we are approaching an era where negative-yielding bonds and zero-yielding currencies will become the norm, each of the two being in infinite supply. In such an environment, investors will have to look elsewhere to protect themselves from an incoming global financial crisis.

Holmes has little doubt that gold is among the best asset to do just that. Its independence and cherished scarcity make it an ideal choice of a shield against dubious government policies. Yet gold offers more than just the assurance of wealth protection. While the metal recently sparked above $1,500 an ounce in spectacular fashion, Holmes thinks that the callous actions of central bankers, especially in regards to currency debasement, could bring its price to $10,000 an ounce in the coming years.

The Fed Raised Interest Rates. Now What?

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Not only has the Fed raised interest rates, they want to keep on doing it through 2018. Can our economy sustain the ongoing increases?

The Fed Raised Interest Rates. Now What?

From Filip Karinja, for Birch Gold Group

This week, the Federal Reserve voted to raise interest rates a quarter of a percent to 0.5%, the first rate risesince 2006.

But this wasn’t the only bold announcement the Fed made. In a report released the same day, titled “Economic Projections“, they predicted that by 2018 they would raise rates to 3.3%.

It seems odd that they would come out with such a view on rates when, just last month, Janet Yellen said she would consider lowering rates into negative territory if the market was to fall considerably, like in 2008.

Considering the astronomic levels of our federal debt, having rates at 3.3% would be economic suicide; the United States simply would not be able to meet its obligations to its debt.

Interest rate target Federal Reserve The Fed Raised Interest Rates. Now What?

Projected Federal Reserve interest rate target (SOURCE)

So what does the Fed see changing in the next three years so positively — not only in the United States, but around the world — to be able to raise rates so sharply?

Here are the present day facts:

  • The global economy is beginning to contract, with many central banks already printing money like crazy and reducing rates into negative territory.
  • Retail sales have been falling short of expectations.
  • New housing has dropped off sharply.
  • The United States is becoming more polarized than ever — on politics, race, religion, etc.
  • The possibility of war in Syria and the Middle East region is ever intensifying, with nations taking turns dropping bombs all over the region.
  • Terrorism is increasingly spreading into the western world.
  • The threat of conflict with nations such as China, Russia, Syria and Iran is on the rise. Consider how Turkey shot down a Russian jet earlier this month.
  • Youth unemployment in Europe is reaching worrying levels.

For some reason, none of these factors seem to be weighing in on the Fed’s projections for the coming years. But ask yourself: How many of these problems do you think will be solved any time soon?

If you think any of this is overly cynical, take a look at this video, from Mr. Positive himself, motivational coach Tony Robbins. In it, he explains the nation’s debt problem and how there is no solution for it. Even if the rich were to be taxed a full 100% on earnings, it would not put a dent in the deficit.

Now, pretend you’re over two years in the future, in 2018. Would you guess that the debt will increase or decrease?

With the debt already so absurdly high, if the Fed moved rates out to 3.3%, the interest on this debt would be practically impossible to pay.

So put yourself two years in the future, and think about what it may hold for our nation. If you have any concerns, you may want to consider protecting your savings with some precious metals. Give us a call — we’re ready to help.

Is the bond market the next shoe to drop in Wall Street? Read why here.

photo credit: Perspectived, lines, madame #instaprol via photopin (license)