Dear Reader,
Happy Monday. Last day of March.
What a slog of a month it’s been - for the markets, for Behind the Markets - it’s been kind of an uphill month.
But today I want to talk about the price of gold.
Right now it’s over $3,000, as we predicted last year.
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Bank of America came out with a note last week saying they could see gold rising to $3,500 an ounce on budget issues and China buying.
I could see gold rising even further...
It really depends on the budget that the Trump administration puts through with Congress.
If the Trump administration sits down with congressional leaders in both parties and they come out with a way to really cut structural costs, entitlements - and I don’t mean cut your social security right now - I mean cut my social security, meaning I’ll have to wait a couple more years till I retire, like Reagan did in the ‘80s…
If the Trump administration can come up with kind of a “grand bargain” with both parties to actually pay for the tax cuts he wants, then I don’t see gold going any higher.
But if the Trump administration pushes through a budget that keeps our deficit at $2 trillion a year, with interest payments at $1 trillion a year, then I see gold moving higher as a hedge against debasement of our currency.
And frankly, we haven’t “budgeted” anything since the Clinton years. Clinton was the last guy who actually cut expenses to match tax breaks, famously with Newt Gingrich.
His last year in office, Bill Clinton left us a surplus.
He’s the last president to do that. So, we know it’s possible, when we cut expenses, to actually have a surplus.
I think gold is waiting to see what happens with these DOGE cuts - are they significant or are they nickels in the couch?
So far, they’ve been the nickels in the couch.
Trump has talked about going after Medicaid, which is the program for low-income people, but it’s also the place Obamacare recipients get funding and a lot of those recipients are in red states. So, it will be tricky.
And unless or until they pass a budget that shows a credible, long-term plan for lowering the deficit over time…
A plan that will bring bond buyers back into the market…
The price of gold is going higher.
It doesn’t help that Trump’s trade policies certainly incentivize people to push away from the dollar.
Remember something - when we’re trading with our partners, they’re selling products into America… they’re pulling dollars out… what are they doing with those dollars?
They’re bringing them back to Germany… bringing them back to China… and some of them, they’re investing in the U.S. bond market.
Well guess what…
They might not need all those dollars anymore.
And if they don’t need dollars, it puts the U.S. dollar’s reserve currency status at great risk and it creates incentives for gold and alternative currencies like the Chinese yuan.
Basically, what I’m saying to you is the biggest country that is most open to trade, that has the most-convertible currency, will basically become the dominant reserve currency over time.
Remember, having the world reserve currency gives us a lot of great advantages.
When other countries buy our bonds, it keeps our interest rates low.
If they walk away from buying our bonds, interest rates spike, markets crash and it’s a disaster for all of us. Here’s what that looks like.
The headline here is the price of gold is really dependent on what the Trump administration’s budget looks like.
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