Sive Morten
Special Consultant to the FPA
- Messages
- 18,922
Fundamentals
The pressure on US financial authorities and government is rising. It is becoming more and more difficult to hold restrictive policy. Crazy stock market ratios, geometrically rising interest payments, budget deficit and other data make it more difficult to keep at achieved levels. Which actually is vital for Democrats at the even of the elections.
Market overview
U.S. retail sales barely rose in May and figures for the prior month were revised considerably lower, data showed on Tuesday, suggesting economic activity remained lacklustre in the second quarter. That slightly boosted the odds of a Federal Reserve rate cut in September to 67% from 61% a day earlier, the CME FedWatch tool showed.
Gold prices rose about 1.3% last Friday on signs of inflation cooling in the United States amid a sell-off across European equities as French stocks were battered by political turmoil. Political uncertainty surrounding Europe can be a positive, with elections in France and the UK nearing, Kinesis Money market analyst Carlo Alberto De Casa said.
Gold prices rose more than 1% on Thursday to their highest level in two weeks, as recent U.S. economic data showing signs of a slowdown in the world's largest economy boosted bets for interest rate cuts from the Federal Reserve this year. U.S. jobless claims fell in the latest week, data showed, suggesting a generally stable labor market. U.S. single-family homebuilding in May fell 5.2% to a seasonally adjusted annual rate of 982,000 units.
Gold prices dropped more than 1% on Friday, weighed down by a stronger dollar and higher bond yields after data showed strong U.S. business activity, while auto-catalyst metal palladium jumped to a one-month high. U.S. business activity crept up to a 26-month high in June amid a rebound in employment. Data on Thursday showed first-time applications for U.S. unemployment benefits fell moderately last week.
CENTRAL BANKS ARE KEEPING ACTIVITY HIGH
Financial Times writes, that advanced economies’ central banks expect gold’s share of global reserves to rise at the expense of the US dollar, as these institutions look to follow the lead of emerging markets in buying bullion. Almost 60 per cent of rich countries’ central banks believe that gold’s share of global reserves will rise in the next five years, up from 38 per cent of respondents last year, according to an annual survey conducted by the World Gold Council, an industry promotion group.
About 13 per cent of advanced economies plan to increase their gold holdings in the next year, up from around 8 per cent last year and the highest level since the survey began. That follows the lead of emerging market central banks, which have been the main purchasers of gold since the 2008 global financial crisis.Meanwhile, a rising proportion of advanced economies — 56 per cent, up from 46 per cent last year — also think the dollar’s share of global reserves will fall over the next five years. Among emerging market central banks, 64 per cent share this view.
The survey — one of the few insights into the thinking of publicity-shy reserve managers — found that a record share of central banks since the survey began five years ago intend to increase their gold reserves over the next 12 months, at 29 per cent of respondents. Of the emerging market respondents, nearly 40 per cent plan to raise their holding.The main reasons cited by central banks for holding gold are its long-term value, performance during a crisis and its role as an effective diversifier.
It is up 42 per cent since the Israel-Hamas conflict began in October.The dollar’s share of global foreign exchange reserves — excluding gold — has plummeted from more than 70 per cent in 2000 to about 55 per cent last year, stripping out the effect of US dollar appreciation, according to research from the IMF this month. Including gold, the dollar’s share has dropped below half, the WGC says.Although the Chinese renminbi has made some gains as a reserve currency, the uncertainty hanging over the country’s economy has meant that the percentage of central banks expecting it to increase its share of global reserves fell from 79 per cent last year to 59 per cent this year.
More than four in five respondents expect reserve managers to increase global holdings of bullion, the highest proportion on record since the annual survey began, the World Gold Council’s report said. Central banks around the world expect global reserves of gold to increase over the next year, while pessimism toward the U.S. dollar has grown, according to a new report. More than four in five respondents expect reserve managers to increase global holdings of bullion, the highest proportion on record since the annual survey began, the World Gold Council’s report said. Nearly 30% of the banks plan to add to their own reserves within the next year, including 13% of banks in advanced economies.
At the same time Bloomberg Economists suggest that Gold is overvalued now for ~25%. Purchases of gold by the Central Bank of China, India and other countries distort the long-term price ratios between the precious metal, real interest rates and the dollar. Today, gold prices exceed the projected fair value of the precious metal by about $500 per ounce, strategists at Bloomberg Economics write. This probably means that the forecasts for the price of gold should be adjusted upwards.
Gold is trading at a large and steady premium to the modeled value, and this indicates a change in its underlying relationship with real rates, the dollar, and capital flows in exchange-traded funds (ETFs). The likely reason for this is the purchase of gold by central banks, which allow the precious metal to persistently stay above the levels predicted by analysts. Data over the past five years point to a sharp gap between what gold should be doing, according to regression models*, and what it has actually been doing since 2023. Today, gold prices exceed the projected fair value of the precious metal by about $500 per ounce, i.e. ~ 25%
Central banks led by Turkey, China and India have actually set a "floor" for the price of gold, which has not become cheaper even in the face of outflows from exchange-traded funds in the recent past. Interestingly, with all this, the correlation between intraday fluctuations in gold prices and other financial indicators, including the dollar exchange rate and real interest rates in the United States, has not changed significantly: the 120-day negative correlation between the precious metal on the spot and the DXY dollar index is about 44%. The fact that these relationships persist even when gold prices deviate from "fair" estimates indicates the demand for precious metals from some buyers, for whom the price does not matter in principle.
The average forecast of gold analysts surveyed by Bloomberg is $2,296.19 per ounce in Q4. This year, the metal has risen in price by 12% to $ 2,320.
JAPAN SURPRISES
In Japan, the expected happened and the yen was not helped by multi-ten billion dollar interventions and many threatening words from the Central Bank, which we discussed earlier.The yen rate is hitting the bottom again. Inflation is also not calming down, but rather accelerating to 2.8% from 2.5% last month. You could ask - how it relates to gold? Very simple. Investors haven't paid enough attention to the statement of Norinchukin Bank. For years, it was best known as Japan’s CLO whale — a $357 billion investing giant with seemingly insatiable appetite for yield in an era of rock-bottom interest rates.
Now Norinchukin Bank has become one of the biggest casualties of an entirely different financial world — where higher-for-longer borrowing costs are exacting a painful toll on the market’s weakest hands. The agricultural bank surprised the market this week by saying it would sell $63 billion of low-yielding US and European government bonds that had become unprofitable to hold after the firm’s shorter-term funding costs jumped. The unlisted firm warned that losses this fiscal year may swell to 1.5 trillion yen ($9.5 billion), triple an estimate made less than a month ago.
That’s creating a tricky landscape for institutions like Norinchukin, which piled into US and European sovereign bonds on the expectation that falling rates would spark a debt rally after two years of declines. The bank is now overhauling its portfolio, selling off a third of its sovereign holdings and shifting to other types of assets, including collateralized loan obligations and domestic and overseas bonds.
What actually has happened? The Japanese bank Norinchukin financing, or rather having a client base and funding from the agricultural, forestry and fishing industries with ~$800 billion of assets felt all the problems of the carry trade between the yen and the dollar, which is why the bank had to sell $63 billion worth of American treasuries and European securities, recording a loss of 9.5 billion .dollars
You need to understand that this bank’s usual (not in crisis years) annual profit is something in the region of $2 billion, and its entire capital (with such huge assets, yes) is only about $30 billion. That is, They lost a third of their capital due to losses from carry trades on foreign assets.
What exactly is the problem with the carry trade? The fact is that they bought long treasuries and hedged the position on the yen against the dollar at current rates. Now the cost of the hedge exceeds the return on long-term treasuries (because short-term US rates are higher), so they caught a combo - a loss from a decrease in the price of long-term bonds and a current loss due to the negative return on the position taking into account the hedge (negative carry trade). The nuance is that they had to sell long-term treasuries, recording a loss, so as not to continue to bear current losses from the difference in the cost of the hedge and profitability and in order to transfer into something more profitable, but with greater risks.
Everything is aggravated by the fact that the Japanese Central Bank still plans to increase the rate, which means that the cost of funding will increase, despite an already unprofitable position. In short, an interesting and difficult situation in the Japanese financial system is just beginning to emerge. And we already have first fruits on government stage - the U.S. Treasury on Thursday said no major trading partner appeared to have manipulated its currency last year, but it added Japan to a foreign exchange "monitoring list," alongside China, Vietnam, Taiwan, Malaysia, Singapore and Germany, which were on the previous list. Yes, this is not a mistake, guys.
So, the US have already expressed dissatisfaction with the manipulations and added them to the list. But the Japanese need to sell treasuries and dollar assets, spend dollars to hold the yen. How to be? Vassal should not come to a debt-ridden emperor with bills and demand repayment. The Emperor will put you on the list of unreliable bastards. A handshake vassal should come and joyfully buy new bills. The accusation from the US sounds surprising - Japanese seem to be doing everything they can for the benefit of their overlord. Or not everything? Whether they decided to desert and the US had to pull them back in this way? Or the overlord has lost his shores and is setting unrealistic plans? The deficit is not decreasing, but growing. And apparently even the samurai don’t have the money to buy back the new debt. Now think about gold...
BIG SCALE PICTURE
I will not repeat historical facts here but everybody knows about Roosevelt's Executive Order 6102 criminalized private possession of gold worth more than $100 in the United States. OPEC oil embargo in 1973, the US President was a criminal during the Watergate scandal of 1974. Then came the humiliating withdrawal of US troops from Vietnam in 1975, accompanied by the helicopter evacuation of the US embassy in Saigon. In 1979, Iran captured 52 US citizens and held them hostage for more than a year. Inflation raged, peaking at 13.6%. The economy stagnated and fell into recession. Problems in the Middle East (including the conflict with Israel) have led to energy shortages and rising fuel prices. Civil unrest and "largely peaceful" protests were a constant problem in the 70s and 80s, etc, etc...
There's an old saying (originally a Danish proverb) that suggests that if history doesn't repeat itself, it certainly rhymes. it's clear that we face many of the same problems today as it was in 1960-70s.There are serious problems in the Middle East. Energy is becoming scarce (especially in Europe). The US military suffered a humiliating withdrawal from Afghanistan. The civil unrest and crime rates are completely unacceptable. Inflation continues to rage. And the president, aka “Big Guy,” is under suspicion due to corruption scandals.
As in the 1970s, gold represents a refuge from this chaos. And although the price is hovering near a record $2,000, gold still has a long way to go. The US national debt now stands at $33.7 trillion, growing by more than half a trillion in October alone. Responsible people have absolutely no financial restrictions. Zero responsibility. Zero sense of how destructive their actions are. They spend money and get deeper into debt as if there will never be any consequences, until the end of time. They are disgustingly ignorant and dangerous.
The truth is that all this debt has serious consequences. And we don't have to guess what it is. The Congressional Budget Office already projects that by 2031, the US government will spend 100% of its tax revenues on mandatory payments (such as Social Security) and interest on debt alone. This means that after 2031, funding literally everything else in government—from the U.S. military to the White House light bill—will have to be financed by more debt. This is just 7 years later.
Then, two years later, in 2033, Social Security's main trust fund will run out of money; it would cost the government an additional $1 trillion each year to maintain the program. Naturally, they will have to borrow this money too. Eventually the national debt will become so large that simply paying interest each year will consume more than 100% of tax revenue.The Federal Reserve will likely try to save the government by creating trillions and trillions of dollars. But as we have seen in the past few years, such actions will likely lead to much higher inflation.
Frustrated with their financial situation, voters across America are likely to turn to socialist politicians who blame their problems on the evils of capitalism rather than on their own incompetence. And since the country is run by a majority of leftists, they will only make the situation worse. There will be more conflicts in the world, largely due to the continued decline in America's status and reputation as a strong country.
It is also likely that the US dollar could lose its reign as the world's dominant reserve currency by the end of the decade. It is not necessarily to believe that the dollar will simply disappear from world trade. But it will no longer be a “royal” dollar. Perhaps it is more like the downgraded dollar, along with other currencies and exchange mechanisms including gold. In fact, we could easily see central banks around the world abandoning their US dollars and purchasing gold as part of a new, de-dollarized global financial system.
This could potentially trigger trillions of dollars of capital inflow into the gold market, causing gold prices to rise. These are just some of the reasons why gold still has a long way to go. Of course this is not for the next month or even a year. This is long term and this view on gold are based on trends that will likely continue to develop over the next decade. it is clear that in an upside-down world, where there are such obvious long-term threats to the US dollar, it makes sense to look for real stores of value. And that's why $2,000 gold could be the start of a much bigger story...
Now the US financial system is more or less stable, although it is manually controlled. If there are no external disturbances, it will easily last another year and a half. Even despite the growing state budget deficit, periodic bank failure and the danger of rising inflation.
Of course there will be external disturbances. Larry Fink said it well - markets are like totalitarian governments, and as we well know, the main threat to any centralized and strictly hierarchical system is the question of a change of power. This is what we will be doing in the USA this November. This is not a change of frontman, but rather a difficult transition of power. A stalemate is highly likely there (no one will win, everyone will throw in approximately an equal number of ballots), but then there is a fork in the road: either an agreement and most likely Trump will not be elected again, or a clinch, and there will be dual power in the country for some time, or rather, anarchy and chaos. The United States could have two presidents for some time. How exactly and how quickly they will resolve this situation is unknown, but this is precisely where the “window of opportunity” for chaos arises. In this regard, in terms of timing, it is not September or November that looks the most dangerous, but the period from December to February or even March. Which is the most likely date for a market collapse and worsening of the financial crisis.
Here we also could add a few fresh news, concerning V. Putin visit to North Korea and Vietnam. The Houthis have become more active. The recent sinking of the bulk carrier Tutor by an unmanned kamikaze boat marks a significant escalation of the situation. This has led to a sharp rise in the cost of container shipping, as well as a resurgence in insurance costs. The cost of covering a commercial vessel for transit through the Red Sea has jumped from 0.3% of the total cost of the vessel to 0.6%. In other words, a $50 million ship would have to pay out more than $300,000 in insurance on a single trip.
The incident showed that the US operation in the region, called Prosperity Guardian, is unable to counter the endless Houthi attacks on commercial ships along the critical shipping route. The new escalation spiral comes from Israel - Lebanon conflict. Yesterday two days evacuation from Beirut is started. Israel prepares to end fighting in Gaza and focuses on possible war with Lebanon, while the US will support Israel in case of conflict with Hezbollah:
In turn, Hezbollah included the Israeli Dimona nuclear power plant on its list of targets. Hezbollah also intends to attack Israel's offshore gas platforms and pipelines.
From power plants, nuclear weapons storage facilities, military bases and airports, Hezbollah is laying all its cards on the table.
All above mentioned information makes no necessity to make special conclusions. The consequences for gold market on a long run are obvious - it should keep going higher.
The pressure on US financial authorities and government is rising. It is becoming more and more difficult to hold restrictive policy. Crazy stock market ratios, geometrically rising interest payments, budget deficit and other data make it more difficult to keep at achieved levels. Which actually is vital for Democrats at the even of the elections.
Market overview
U.S. retail sales barely rose in May and figures for the prior month were revised considerably lower, data showed on Tuesday, suggesting economic activity remained lacklustre in the second quarter. That slightly boosted the odds of a Federal Reserve rate cut in September to 67% from 61% a day earlier, the CME FedWatch tool showed.
Gold prices rose about 1.3% last Friday on signs of inflation cooling in the United States amid a sell-off across European equities as French stocks were battered by political turmoil. Political uncertainty surrounding Europe can be a positive, with elections in France and the UK nearing, Kinesis Money market analyst Carlo Alberto De Casa said.
Gold prices rose more than 1% on Thursday to their highest level in two weeks, as recent U.S. economic data showing signs of a slowdown in the world's largest economy boosted bets for interest rate cuts from the Federal Reserve this year. U.S. jobless claims fell in the latest week, data showed, suggesting a generally stable labor market. U.S. single-family homebuilding in May fell 5.2% to a seasonally adjusted annual rate of 982,000 units.
Gold prices dropped more than 1% on Friday, weighed down by a stronger dollar and higher bond yields after data showed strong U.S. business activity, while auto-catalyst metal palladium jumped to a one-month high. U.S. business activity crept up to a 26-month high in June amid a rebound in employment. Data on Thursday showed first-time applications for U.S. unemployment benefits fell moderately last week.
CENTRAL BANKS ARE KEEPING ACTIVITY HIGH
Financial Times writes, that advanced economies’ central banks expect gold’s share of global reserves to rise at the expense of the US dollar, as these institutions look to follow the lead of emerging markets in buying bullion. Almost 60 per cent of rich countries’ central banks believe that gold’s share of global reserves will rise in the next five years, up from 38 per cent of respondents last year, according to an annual survey conducted by the World Gold Council, an industry promotion group.
About 13 per cent of advanced economies plan to increase their gold holdings in the next year, up from around 8 per cent last year and the highest level since the survey began. That follows the lead of emerging market central banks, which have been the main purchasers of gold since the 2008 global financial crisis.Meanwhile, a rising proportion of advanced economies — 56 per cent, up from 46 per cent last year — also think the dollar’s share of global reserves will fall over the next five years. Among emerging market central banks, 64 per cent share this view.
The survey — one of the few insights into the thinking of publicity-shy reserve managers — found that a record share of central banks since the survey began five years ago intend to increase their gold reserves over the next 12 months, at 29 per cent of respondents. Of the emerging market respondents, nearly 40 per cent plan to raise their holding.The main reasons cited by central banks for holding gold are its long-term value, performance during a crisis and its role as an effective diversifier.
It is up 42 per cent since the Israel-Hamas conflict began in October.The dollar’s share of global foreign exchange reserves — excluding gold — has plummeted from more than 70 per cent in 2000 to about 55 per cent last year, stripping out the effect of US dollar appreciation, according to research from the IMF this month. Including gold, the dollar’s share has dropped below half, the WGC says.Although the Chinese renminbi has made some gains as a reserve currency, the uncertainty hanging over the country’s economy has meant that the percentage of central banks expecting it to increase its share of global reserves fell from 79 per cent last year to 59 per cent this year.
More than four in five respondents expect reserve managers to increase global holdings of bullion, the highest proportion on record since the annual survey began, the World Gold Council’s report said. Central banks around the world expect global reserves of gold to increase over the next year, while pessimism toward the U.S. dollar has grown, according to a new report. More than four in five respondents expect reserve managers to increase global holdings of bullion, the highest proportion on record since the annual survey began, the World Gold Council’s report said. Nearly 30% of the banks plan to add to their own reserves within the next year, including 13% of banks in advanced economies.
At the same time Bloomberg Economists suggest that Gold is overvalued now for ~25%. Purchases of gold by the Central Bank of China, India and other countries distort the long-term price ratios between the precious metal, real interest rates and the dollar. Today, gold prices exceed the projected fair value of the precious metal by about $500 per ounce, strategists at Bloomberg Economics write. This probably means that the forecasts for the price of gold should be adjusted upwards.
Gold is trading at a large and steady premium to the modeled value, and this indicates a change in its underlying relationship with real rates, the dollar, and capital flows in exchange-traded funds (ETFs). The likely reason for this is the purchase of gold by central banks, which allow the precious metal to persistently stay above the levels predicted by analysts. Data over the past five years point to a sharp gap between what gold should be doing, according to regression models*, and what it has actually been doing since 2023. Today, gold prices exceed the projected fair value of the precious metal by about $500 per ounce, i.e. ~ 25%
Central banks led by Turkey, China and India have actually set a "floor" for the price of gold, which has not become cheaper even in the face of outflows from exchange-traded funds in the recent past. Interestingly, with all this, the correlation between intraday fluctuations in gold prices and other financial indicators, including the dollar exchange rate and real interest rates in the United States, has not changed significantly: the 120-day negative correlation between the precious metal on the spot and the DXY dollar index is about 44%. The fact that these relationships persist even when gold prices deviate from "fair" estimates indicates the demand for precious metals from some buyers, for whom the price does not matter in principle.
The average forecast of gold analysts surveyed by Bloomberg is $2,296.19 per ounce in Q4. This year, the metal has risen in price by 12% to $ 2,320.
JAPAN SURPRISES
In Japan, the expected happened and the yen was not helped by multi-ten billion dollar interventions and many threatening words from the Central Bank, which we discussed earlier.The yen rate is hitting the bottom again. Inflation is also not calming down, but rather accelerating to 2.8% from 2.5% last month. You could ask - how it relates to gold? Very simple. Investors haven't paid enough attention to the statement of Norinchukin Bank. For years, it was best known as Japan’s CLO whale — a $357 billion investing giant with seemingly insatiable appetite for yield in an era of rock-bottom interest rates.
Now Norinchukin Bank has become one of the biggest casualties of an entirely different financial world — where higher-for-longer borrowing costs are exacting a painful toll on the market’s weakest hands. The agricultural bank surprised the market this week by saying it would sell $63 billion of low-yielding US and European government bonds that had become unprofitable to hold after the firm’s shorter-term funding costs jumped. The unlisted firm warned that losses this fiscal year may swell to 1.5 trillion yen ($9.5 billion), triple an estimate made less than a month ago.
That’s creating a tricky landscape for institutions like Norinchukin, which piled into US and European sovereign bonds on the expectation that falling rates would spark a debt rally after two years of declines. The bank is now overhauling its portfolio, selling off a third of its sovereign holdings and shifting to other types of assets, including collateralized loan obligations and domestic and overseas bonds.
What actually has happened? The Japanese bank Norinchukin financing, or rather having a client base and funding from the agricultural, forestry and fishing industries with ~$800 billion of assets felt all the problems of the carry trade between the yen and the dollar, which is why the bank had to sell $63 billion worth of American treasuries and European securities, recording a loss of 9.5 billion .dollars
You need to understand that this bank’s usual (not in crisis years) annual profit is something in the region of $2 billion, and its entire capital (with such huge assets, yes) is only about $30 billion. That is, They lost a third of their capital due to losses from carry trades on foreign assets.
What exactly is the problem with the carry trade? The fact is that they bought long treasuries and hedged the position on the yen against the dollar at current rates. Now the cost of the hedge exceeds the return on long-term treasuries (because short-term US rates are higher), so they caught a combo - a loss from a decrease in the price of long-term bonds and a current loss due to the negative return on the position taking into account the hedge (negative carry trade). The nuance is that they had to sell long-term treasuries, recording a loss, so as not to continue to bear current losses from the difference in the cost of the hedge and profitability and in order to transfer into something more profitable, but with greater risks.
Everything is aggravated by the fact that the Japanese Central Bank still plans to increase the rate, which means that the cost of funding will increase, despite an already unprofitable position. In short, an interesting and difficult situation in the Japanese financial system is just beginning to emerge. And we already have first fruits on government stage - the U.S. Treasury on Thursday said no major trading partner appeared to have manipulated its currency last year, but it added Japan to a foreign exchange "monitoring list," alongside China, Vietnam, Taiwan, Malaysia, Singapore and Germany, which were on the previous list. Yes, this is not a mistake, guys.
So, the US have already expressed dissatisfaction with the manipulations and added them to the list. But the Japanese need to sell treasuries and dollar assets, spend dollars to hold the yen. How to be? Vassal should not come to a debt-ridden emperor with bills and demand repayment. The Emperor will put you on the list of unreliable bastards. A handshake vassal should come and joyfully buy new bills. The accusation from the US sounds surprising - Japanese seem to be doing everything they can for the benefit of their overlord. Or not everything? Whether they decided to desert and the US had to pull them back in this way? Or the overlord has lost his shores and is setting unrealistic plans? The deficit is not decreasing, but growing. And apparently even the samurai don’t have the money to buy back the new debt. Now think about gold...
BIG SCALE PICTURE
I will not repeat historical facts here but everybody knows about Roosevelt's Executive Order 6102 criminalized private possession of gold worth more than $100 in the United States. OPEC oil embargo in 1973, the US President was a criminal during the Watergate scandal of 1974. Then came the humiliating withdrawal of US troops from Vietnam in 1975, accompanied by the helicopter evacuation of the US embassy in Saigon. In 1979, Iran captured 52 US citizens and held them hostage for more than a year. Inflation raged, peaking at 13.6%. The economy stagnated and fell into recession. Problems in the Middle East (including the conflict with Israel) have led to energy shortages and rising fuel prices. Civil unrest and "largely peaceful" protests were a constant problem in the 70s and 80s, etc, etc...
There's an old saying (originally a Danish proverb) that suggests that if history doesn't repeat itself, it certainly rhymes. it's clear that we face many of the same problems today as it was in 1960-70s.There are serious problems in the Middle East. Energy is becoming scarce (especially in Europe). The US military suffered a humiliating withdrawal from Afghanistan. The civil unrest and crime rates are completely unacceptable. Inflation continues to rage. And the president, aka “Big Guy,” is under suspicion due to corruption scandals.
As in the 1970s, gold represents a refuge from this chaos. And although the price is hovering near a record $2,000, gold still has a long way to go. The US national debt now stands at $33.7 trillion, growing by more than half a trillion in October alone. Responsible people have absolutely no financial restrictions. Zero responsibility. Zero sense of how destructive their actions are. They spend money and get deeper into debt as if there will never be any consequences, until the end of time. They are disgustingly ignorant and dangerous.
The truth is that all this debt has serious consequences. And we don't have to guess what it is. The Congressional Budget Office already projects that by 2031, the US government will spend 100% of its tax revenues on mandatory payments (such as Social Security) and interest on debt alone. This means that after 2031, funding literally everything else in government—from the U.S. military to the White House light bill—will have to be financed by more debt. This is just 7 years later.
Then, two years later, in 2033, Social Security's main trust fund will run out of money; it would cost the government an additional $1 trillion each year to maintain the program. Naturally, they will have to borrow this money too. Eventually the national debt will become so large that simply paying interest each year will consume more than 100% of tax revenue.The Federal Reserve will likely try to save the government by creating trillions and trillions of dollars. But as we have seen in the past few years, such actions will likely lead to much higher inflation.
Frustrated with their financial situation, voters across America are likely to turn to socialist politicians who blame their problems on the evils of capitalism rather than on their own incompetence. And since the country is run by a majority of leftists, they will only make the situation worse. There will be more conflicts in the world, largely due to the continued decline in America's status and reputation as a strong country.
It is also likely that the US dollar could lose its reign as the world's dominant reserve currency by the end of the decade. It is not necessarily to believe that the dollar will simply disappear from world trade. But it will no longer be a “royal” dollar. Perhaps it is more like the downgraded dollar, along with other currencies and exchange mechanisms including gold. In fact, we could easily see central banks around the world abandoning their US dollars and purchasing gold as part of a new, de-dollarized global financial system.
This could potentially trigger trillions of dollars of capital inflow into the gold market, causing gold prices to rise. These are just some of the reasons why gold still has a long way to go. Of course this is not for the next month or even a year. This is long term and this view on gold are based on trends that will likely continue to develop over the next decade. it is clear that in an upside-down world, where there are such obvious long-term threats to the US dollar, it makes sense to look for real stores of value. And that's why $2,000 gold could be the start of a much bigger story...
Now the US financial system is more or less stable, although it is manually controlled. If there are no external disturbances, it will easily last another year and a half. Even despite the growing state budget deficit, periodic bank failure and the danger of rising inflation.
Of course there will be external disturbances. Larry Fink said it well - markets are like totalitarian governments, and as we well know, the main threat to any centralized and strictly hierarchical system is the question of a change of power. This is what we will be doing in the USA this November. This is not a change of frontman, but rather a difficult transition of power. A stalemate is highly likely there (no one will win, everyone will throw in approximately an equal number of ballots), but then there is a fork in the road: either an agreement and most likely Trump will not be elected again, or a clinch, and there will be dual power in the country for some time, or rather, anarchy and chaos. The United States could have two presidents for some time. How exactly and how quickly they will resolve this situation is unknown, but this is precisely where the “window of opportunity” for chaos arises. In this regard, in terms of timing, it is not September or November that looks the most dangerous, but the period from December to February or even March. Which is the most likely date for a market collapse and worsening of the financial crisis.
Here we also could add a few fresh news, concerning V. Putin visit to North Korea and Vietnam. The Houthis have become more active. The recent sinking of the bulk carrier Tutor by an unmanned kamikaze boat marks a significant escalation of the situation. This has led to a sharp rise in the cost of container shipping, as well as a resurgence in insurance costs. The cost of covering a commercial vessel for transit through the Red Sea has jumped from 0.3% of the total cost of the vessel to 0.6%. In other words, a $50 million ship would have to pay out more than $300,000 in insurance on a single trip.
The incident showed that the US operation in the region, called Prosperity Guardian, is unable to counter the endless Houthi attacks on commercial ships along the critical shipping route. The new escalation spiral comes from Israel - Lebanon conflict. Yesterday two days evacuation from Beirut is started. Israel prepares to end fighting in Gaza and focuses on possible war with Lebanon, while the US will support Israel in case of conflict with Hezbollah:
In turn, Hezbollah included the Israeli Dimona nuclear power plant on its list of targets. Hezbollah also intends to attack Israel's offshore gas platforms and pipelines.
From power plants, nuclear weapons storage facilities, military bases and airports, Hezbollah is laying all its cards on the table.
All above mentioned information makes no necessity to make special conclusions. The consequences for gold market on a long run are obvious - it should keep going higher.
