February 2024 - Week 2 Edition

Gold and Silver Have Risen an Average 9.4% to 11.4% in the Past Five Election Years (And Much More in the 2020 Biden/Trump Contest)

Precious metals rose by an average 9.4% (for gold) and 11.4% (for silver) in the five elections since 2004. All of these elections were hotly contended, especially the last election, Trump vs. Biden. That rematch is on track this year, with even more contention, as both candidates are not only older (78 and 82 on Inauguration Day, respectively), but both are under legal and political scrutiny like never before.

In 2020, silver rose 47.4% and gold rose 24.4%. Part of this rise was the aftermath of COVID but much of it was also due to the controversy over the election process and its long-unresolved results. That could be repeated this year, even though each party may draft a better, younger candidate by convention time.

The only negative number in the chart below is silver in 2008. During that year, silver rose from an opening price of $14 to $49 in April 2008 before falling to nearly $10 in December, during the worst panic months of the Great Financial Crisis of 2008. So, your investment success was dependent on when you bought gold and silver in 2008.

In addition to a controversial presidential race, we also have the highest interest rates in the last 15 years. During the Obama years, the Fed funds rate was held near zero 0% to 0.25% from 2009 to 2016. After raising rates to barely 2% late in Trump’s single term, interest rates returned to zero from March 2020 to March 2022. Since mid-2022 rates have been above 5% and will likely remain that high until at least mid-2024. 

Also, we have seen two active wars start in Biden’s term – one between Russia and Ukraine, and another between Israel and several Iranian proxies, including Hamas. Plus, there is the potential for war as Venezuela is threatening to take control of Guyana and China threatened to invade and annex Taiwan.

So far this year, the U.S. Dollar Index has risen by 3.4%, from 101.3 to 104.8, as the it has been the main “crisis hedge” for most investors, despite soaring U.S. Treasury debts. There will come a time, however, when investors lose faith in dollar debt and they switch to gold, sending gold soaring.

U.S. debt was already downgraded twice last year, by Fitch in August and Moody’s in November, so a third downgrade could send more investors out of the dollar and into other currencies or gold as a crisis hedge. As we know from experience, a gold bull market pulls many more investors into bullion coins and then, within 6-12 months, a good portion (maybe 15% to 20%) of those coin buyers move up to numismatic coins, boosting demand and some prices.

Biden’s Budget Projections Could “Break the Bank”

The Biden Administration keeps drafting spending bills with no apparent thought to the mounting debt, the new high interest rates on that debt or the possibility that foreign and domestic bond buyers will balk at buying more of this massive new debt each quarter. According to the U.S. Treasury, $776 billion in new debt was issued in the fourth quarter of 2023. The Treasury also announced its plan to borrow $776 billion this quarter and $816 billion next quarter with yields at 5%, driving up interest costs.

The non-partisan Congressional Budget Office (CBO) just published 10-year projections of the Biden budgets. The report showed annual spending rising from the current $6 trillion to $10 trillion in 2034, annual budget deficits above $2 trillion and the national debt almost doubling from $26 trillion when Biden entered office to $48.3 trillion in 2034. GDP growth will average an anemic 2% per year over the next decade.

Although the rate of inflation has decreased, people look at prices, not the rate of inflation. The Bureau of Labor Statistics show the change of prices from February 2021 to November 2023 are +34% for gasoline, +24% for electricity and +20% for groceries - and those prices are not going down.  Adjusted for inflation, median middle-class income rose $6,000 in the Trump years and fell $4,000 in the Biden years.

With the January Consumer Price Index (CPI) coming in “hotter” than expected, the Federal Reserve will likely keep short-term interest rates “higher for longer,” and long-term rates rose in reaction to the CPI.

The Federal Reserve has already indicated they will not cut interest rates in March and probably not in May, so the Treasury must pay about 5% on new and renewed Treasury debt. It is a struggling world economy and investors don’t want to risk their capital in U.S. dollar debt, they may insist on even higher rates, bidding up Treasury bonds to 6%, 7% or higher. This would cause the annual rate on our $34 trillion (and rising) public debt to cost $2 trillion or more and push the annual budget deficit ever higher each year.

U.S. Dollar Index Soars

Gold dropped on Tuesday, February 13 and the U.S. Dollar Index soared because… the Consumer Price Index (CPI) rose more than expected. The January CPI came in at 3.1% vs. an expected 2.9%, plus December was higher, as well, at 3.4%, while the “core” CPI came in at a hotter 3.9%. Once again, traders overreacted to higher inflation as bad news for gold (and stocks, which saw the DOW drop by over 500 points) because it appears the Federal Reserve will wait longer than May 1^st to begin cutting interest rates. The result was gold dipped below $2,000 and silver dipped below $22 an ounce. In the futures market, April gold was down $26 to $2,007 and March silver was down $0.64 to $22.12. The Dow Jones index closed 524 points down and the Nasdaq composite was down 250.

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