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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

July 2019 - Week 1 Edition

Democratic Debates Focus on “Spend, Spend, Spend” – Boosting Budget Deficits (and Gold)

The first two Democratic candidate debates last week promised enormous amounts of new spending on several new programs, guaranteeing huge and rising deficits for as far as the eye can see. Peggy Noonan’s weekend Wall Street Journal column summarized the second debate: “The first 15 minutes included higher taxes, free college and student-loan forgiveness [and] most candidates agreed on free health insurance.”

There were also a lot of “Pinocchio moments” in the Democratic debates and the follow-up interviews. For instance, Kamala Harris said Friday morning on MSNBC’s Morning Joe that public school teachers make less than private school teachers.  As a past president of a Texas Diocesan Catholic School Board, who monitored salaries and benefits of private and public school teachers, I know her statement is false. My mother, grandmother and I taught in public schools and we were paid more than private schools offered us in Louisiana.  (However, I do agree with Harris that all teachers deserve to be paid more.)

Harris has also said that 91% of doctors take Medicare.  That is a misleading statement.  While many doctors take Medicare patients, most limit the number or ratio of new Medicare patients they accept, often limiting new Medicare patients to those with extra private insurance, for financial reasons.  Ms. Harris seems to be fact-challenged!  Facts, context and omissions matter when evaluating all candidates.  

Sadly, budget deficits will also likely rise if President Trump is re-elected. On January 20, 2017, the day he took office, the accumulated federal debt was $19.9 trillion. Just over two years later, on February 11, 2019, the federal debt crossed $22 trillion, $2.1 trillion higher in two years when the budget was totally controlled by a Republican Congress under Trump’s leadership. We now have a Democratic Congress and Democratic candidates promising to spend even more money, if elected, on a series of new programs.

 

The national debt almost doubled under Obama. Trump rightly criticized Obama for his high deficits, promising to “bring it down, big league and quickly.” He did not fulfill that promise. Now, not a single candidate of either party (and very few journalists) even mention the deficit. Some Republicans say that economic growth and spending cuts could grow revenues faster than spending. That has happened in the past – with less spending, a more disciplined Congress and higher growth rates – but it is not happening now.  The Committee for a Responsible Federal Budget calculates that it would take 4.8% annual growth rates over the next 10 years to balance the budget through higher economic growth. That seems unlikely.

During previous times of rapidly rising budget deficits in the 1970s and early 2000s, especially during the $1.2 trillion deficits under Obama in 2009 to 2011 gold has seen an increase.  Gold will likely rise again if budget deficits surpass $1 trillion a year once again, as they are expected to do in 2020 and beyond.

Gold Futures Peaked at $1,442.90

Gold futures peaked at $1,442.90 last Tuesday, June 25, its highest level since May 2013, but it had gone up too far, too fast, to sustain those gains, so it retreated to $1,410 by week’s end and dipped below $1,400 on Monday, perhaps on hopes of peace in North Korea and tariff wars ending – although those hopes must remain pipe dreams for now, considering the recalcitrant nature of those two nation’s leaders

After trading between $1,100 and $1,350 for six years, it may have been too much to expect gold to stay above $1,400 without testing those gains, but the long-term case for gold is intact. Interest rates remain below zero throughout Europe and Japan – and are still going lower -- giving gold an advantage against cash in those nations, while interest rates are declining in the U.S., eroding the U.S. dollar’s strength.

Rapidly Rising Gold Prices Lead to More Gold Ads, Generating New and Returning Customers

It’s always smarter to buy gold when it’s down in price, but that’s not human nature. When gold prices shoot up $80 in one week and $120 in two months, investors from around the world become interested in gold, spawning ads in newspapers, drawing many new investors to various coin and bullion dealers.  

This cycle helps to create new customers and reinvigorate inactive customers and bid up gold’s price, thus creating a floor under gold’s price. Some of these many new gold and silver buyers are introduced to rare coins by coin and bullion dealers which eventually stimulates the overall coin market.  Call us today before prices rise further! 

 

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