Last week, the Treasury revealed that the federal deficit amounted to $1.1 trillion in the first half of the fiscal year ending in March, up $432 billion from the same period a year earlier. Moreover, most of this deficit growth came in March, when spending rose 36% year-on-year (in no small part because of rapidly rising interest costs)..
In the longer term, there was a clear growing trend that began in 2015 and now appears to have resumed after some abating as a result of the pandemic. If history is a guide, this deteriorating fiscal trend should represent a structural bearish impact on the US dollar over the coming months and years..
Moreover, if we can be guided by history, the best protection against financial deterioration (mathematically guaranteed by the rapid growth of Social Security and Medicare spending) is gold. The last time the deficit reversed from a narrowing trend and started into a widening trend, back in the early 2000s, it coincided with a major peak in which developed into a major bear market for the dollar (inverted in the chart below) that lasted nearly a decade. time.
This was one of the primary catalysts for a major bull market in which it rose from a low of $250 in 2001 to a high of $2,000 almost a decade later..
Right now, investors are not very interested in owning gold (a contradictory bullish sign that I mentioned in my book). As my friend Callum Thomas recently pointed out, assets invested in gold ETFs such as… GLD It is a small portion of those invested in such ETFs SPY.
However, there is a good chance that the deterioration of the financial situation over time will whet investors’ appetite for precious metals over financial assets, just as it did two decades ago. And this is exactly what could support another major bull market for the precious metal.
