Since March 1st, gold has rallied over 17%, making it one of the best-performing assets. Bitcoin was up 9% in the same period, and the S&P 500 was up 3%. The drivers of gold’s outperformance are varied. The most obvious reason is that many have finally noticed the federal government’s problematic spending habits. Debt is amassed at an average of 1 trillion dollars every 100 days.
Government Debt Concerns
The future math on this debt is ominous. Government debt service will hit over 850 billion in 2024. This represents a 32% increase from 2023 and has eclipsed the national defense budget. In 2025, that number will increase exponentially as they need to roll existing debt into the new, high-interest-rate environment. The fear is that we are now caught in a spiral where the government has to borrow more to pay for previous borrowing, creating massive new debt to cover the old debt.
Tax and Spending Challenges
This situation would be fine if we were in a low-tax environment and could raise taxes to increase revenue. We’re not. At current total tax levels on corporations and individuals, history suggests that any increase would result in lower, not higher, revenues. The only possible solution would be for the national government to begin substantive spending cuts. Yeah, that’s probably not going to happen.
Global Central Banks’ Gold Buying
There’s another element to the current gold buying. Global central banks are buying gold at nearly unprecedented levels. China alone has increased its position in gold to a point where the metal now represents 4.3% of its total sovereign reserves, almost double the level in 2019. Perhaps this phenomenon is the first hint of an attempt at “de-dollarization” in response to the U.S. and Europe’s heavy-handed treatment of Russian assets in the wake of the invasion of Ukraine. Although it seems reasonable for some to applaud the decision, it’s also perfectly reasonable to worry that this should not be the behavior of the stewards of the world’s reserve currency and the arbiter of global trade issues.
Investing in Gold
Of course, there are many ways to invest in or trade gold. The GLD ETF and the CME futures contract are deep and liquid markets that settle to the price of gold. The problem with the ETF is that rumors suggest it doesn’t have enough gold to satisfy all claims. Unfortunately, that makes the vehicle more of a short-term trading instrument than a crisis hedge. The CME contracts are a bit different because a holder has an option for eventual physical delivery. However, if we begin to move towards a genuine currency crisis, there will be no substitute for holding physical gold. Yes, it creates additional challenges when considering safe storage, but it will be one of the few portable stores of value in the event of actual chaos. Although this situation is still not my base case, it’s become way more of a possibility than ever should have been.
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Don’t wait—call GoldenCrest Metals today at 833-426-3825 and talk to our experts about how you can start buying physical gold. Take charge of your future in these uncertain economic times.
Written By Jim Iuorio
Jim Iuorio, managing director of TJM Institutional Services and veteran futures and options trader, spent his 30-year career brokering futures and options trades for large institutional clients in equity indexes, interest rate products, commodities, and foreign exchange. He blends macroeconomic themes with technical analysis to identify trading opportunities and anomalies. Mr. Iuorio co-hosts the “Futures Edge Podcast” and the Tradier live show, “Traders Edge”, and is a frequent guest presenter at financial conferences and events.
