Commodity Trade Mantra

Gold – the only Safe Hideout from the Ongoing Political & Economic Turbulence

How Will the Election Outcome Impact Gold and Silver?

How The US Presidential Election Outcome Impact Gold and Silver

Gold and silver investors wonder what this presidential election will mean for gold and silver markets. Since Nixon closed the gold window in 1971 and the years of price inflation that followed, presidents have largely ignored gold, the Federal Reserve, and other issues related to sound money. Today, the devaluation of the Federal Reserve Note – the explosion of debt and the eternal deficits which enrich bankers and the political class at the expense of the rest of us – is getting harder to ignore, says Clint Siegner of Money Metals Exchange.

The looming national bankruptcy coincides with this year’s extraordinarily divisive election. Regardless of which candidate wins, the Washington DC establishment has already lost a great deal of legitimacy. Polls show well over half of the population will not support the victor. As the trust and prestige of our Federal government fades, the potential for social unrest and even wrenching change in governance and policy is on the rise.

That represents a wildcard for gold and silver markets which is impossible to predict. We can only say history shows gold and silver as key assets during periods of upheaval. If crisis is coming in the next presidential term, the people holding physical gold / silver will almost certainly be glad they did.

We can find very little reason to expect either candidate will fundamentally change the country’s fiscal or monetary outlook.

For starters, it’s important not to put too much faith in what any president can do. Congress has final responsibility for spending and debt. No one is seriously predicting a transformation in that “august” body any time soon. You can expect the status quo. The next Congress will remain beholden to the deep state, and unaccountable otherwise.

Neither presidential candidate is making any sort of promise to address the basic problems of too much debt and crushing entitlement commitments – Social Security, Medicare, Medicaid, etc.

Hillary Clinton is nothing if not perfectly predictable with regards to the policies she will promote. Count on more of the same:

  • Making America safe (and profitable) for cheating banksters
  • Central planning of markets via Fed policy
  • Escalating the war on cash
  • Invading your privacy
  • Taxing you more
  • Waging hideously expensive and deadly wars

Donald Trump has made a lot of hay campaigning as an agent of change. But he isn’t making any bold promises to dramatically reduce spending and entitlements. He intends to increase military spending as well as infrastructure spending, both of which will invariably increase government debt.

He wants Americans to believe he can promote enough economic growth to make these burdens bearable. Is there anyone who still believes this tired old political promise after hearing it repeatedly for all these decades?

For anyone who does, we suggest taking a look at the many good arguments about why we’re past the point of no return when it comes to avoiding a debt crisis.

One problem (among others) with the notion of growing our way out of the predicament we’re in is that higher rates of growth could be accompanied by much higher interest rates. Do the math on what happens to the federal budget when interest rates return to levels closer to what we had in the 90’s. It isn’t pretty. Borrowing costs of 5% translate to an interest expense of a trillion dollars per year.

US Gross National Debt from 1980-2016

Tax receipts will need to grow enough to wipe out the current deficits, plus cover the additional borrowing expense. Growing our way out of the current mess is impossible.

For those who want to still believe the federal debt is manageable if the U.S. can expand GDP, we’d point out strong growth does not necessarily translate to reduced debt.

Just look back at the Ronald Reagan years and the Bill Clinton years – both periods known for economic growth.

There is a limit somewhere when it comes to the size of the obligations our government can service. Even optimists should admit the U.S. is currently on a one way road to financial ruin.

A default is coming – almost certainly via massive devaluation of the dollar.

This election is the most fascinating we’ve ever witnessed. But the fundamental drivers behind precious metals go far beyond the office of president. That is why you should expect prices to be dramatically higher 4 years from now, regardless of what happens at the ballot box in three weeks.

Gold Crosses Party Lines

For many Americans, one of the most depressing aspects to next month’s election will be the fact that there’s a winner. The rhetoric surrounding this contest will go down as some of the most vitriolic in the lifetimes of those watching this meat grinder process limp across the finish line. Strangely there’s been one winner that crosses party lines and remains aloof from petty politics and that’s gold.

Gold futures have chalked up their best settlement so far this month and the precious metal seems to be defying analyst predictions that it will remain in a holding pattern until after the election. If gold was a funding bill, it would be getting bipartisan support says Goldco Precious Metals.

Ron Paul Endorses, Says Money Outweighs Politics

If investors are hoping the election will be able to calm the markets Ron Paul,  former Texas Congressman and Libertarian favorite, says don’t get your hopes up. Paul, who sees very little difference between the two main parties, believes that uncertainty will continue to weigh on markets no matter who wins. He went on to suggest that the laws of economics are more powerful than politics and that continued high levels of debt, combined with an accommodative currency policy by the Fed, will be good for gold prices into the future. Paul believes that gold is one of the few safe places to ride out the ongoing market turbulence he sees in our future.

Inflation Ticks Up

The economy is giving Ron Paul’s comments some backing. Inflation ticked up by 0.3% in September, matching the forecasts of most experts. Americans were paying for gas and rent, but only rent counts toward the inflation calculation as the government measures it. Apparently the Fed doesn’t feel eating and driving should count when it comes to deciding whether you and I are experiencing inflation. Even with those reduced expectations, the inflation rate in September, on an annual basis, would be 1.2%, a number climbing toward the Fed’s two percent target rate. When inflation ticks up, it’s good news for gold and silver prices.

Two-Edged Sword

Inflation cuts both ways when it comes to gold prices. Many get hung up on the connection between interest rates and gold prices. When interest rates rise, gold prices tend to move the other way, but not always. The traditional interest rate model for gold prices doesn’t take into account that interest rates are already at historic lows and minor quarter-point interest rate bumps here and there are more psychological than actual economy-changing events. No company is going to change their borrowing practices when interest rates rise from 0.5% to 0.75%. That change is a rounding error on the volume of cash that flows through our banking system. Sure, some companies that are already heavily in debt may get pushed over the edge by higher borrowing costs but those are companies already circling the drain.

To really cause market-shaking change, the Fed would have to raise interest rates by whole percentage points and that’s just not going to happen. A sudden, sharp and unexpected interest rate hike would throw U.S. and global markets into turmoil. A major interest rate hike would send the dollar skyrocketing on world currency markets. If the dollar moved that high tremendously fast, the flow of U.S. goods and services to foreign markets would come to a virtual standstill, corporate earnings would plummet and the stock market would crater.

In that sense Ron Paul is exactly right. No matter who the next president is, the laws of economics will limit any grand ideas either of them have about economic policy. The reality of our new, highly connected global economy will tend to make both parties’ economic policies look more alike than different. Being locked into the global race to the bottom on currency policy will overthrow any grand plans either candidate has for changing the U.S. economy abruptly in the aftermath of the election.

All that means that gold is the one future play that provides some economic certainty in the days (weeks? months?) ahead.

 

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