“…There are several points I’d like to discuss in this article regarding the status of the precious metals market.”
Prepared by Lorimer Wilson, editor of munKNEE.com – Your KEY To Making Money!
[Editor’s Note: This version* of the original article by Albert Sung has been edited ([ ]), restructured and abridged (…) by 14% for a FASTER – and easier – read. Sung is receiving compensation from Seeking Alpha for pageviews of his original unedited article as posted there so please refer to it for more detail. Please note: This complete paragraph must be included in any re-posting to avoid copyright infringement.]
“1. …The U.S. fiscal situation is headed off a cliff in the coming 3 years:
- Total public debt has now hit $22 trillion and what’s even worse is that $1.5 trillion of this debt will have to be refinanced each year until 2022 at higher interest rates.
- On top of that, the Federal Reserve is selling bonds into this market via balance sheet tapering ($30 billion in bonds per month) so, even though there is a lot of demand coming into bonds from stock investors (due to the crash in stocks last month), bond yields are likely to stay high.
- Interest payments will skyrocket in 2019 (currently $523 billion in fiscal 2018).
You need to ask yourself, who is going to buy these huge amount of bonds?
- The Chinese, Japanese and Russians aren’t buying as is shown in the latest Treasury filing.
- The Federal Reserve is not buying so
- the only ones that are buying are stock investors, bond funds and pension funds but this demand is not nearly enough to soak up all the upcoming supply.
2. …We have the rising deficits that need to be financed as well.
- In 2019, The U.S. federal budget deficit is projected to come in at $985 billion, while the trade deficit will likely hit $700 billion not accounting for a possible recession. Believe me, that recession is coming.
- The latest Markit and ISM manufacturing PMI numbers both point to a crash and suggests that U.S. GDP growth will be going negative soon.
- Lower GDP growth will lead to lower tax revenue and higher deficits. This higher deficit will need to be financed via the sale of government bonds at higher interest rates. It’s needless to say that the U.S. Treasury is running into some problems here.
- The Federal Reserve might want to reconsider its quantitative tightening policy and this would be bad for the U.S. dollar and good for gold.
3. The yield curve has officially inverted, so volatility will be on the rise in the coming years…[which] means
- stocks will go down
- and gold will rise
due to the inverse correlation between stocks and gold.
4. Liquidity risk is rising…and delinquencies are rising. The obvious reason for this is the Federal Reserve, which is pulling liquidity out of the system. While the Federal Reserve unwinds its balance sheet, reserves from commercial banks are falling.
- Considering all these negative factors, the Federal Reserve might want to start pausing on its rate hikes.
- Again, this is bullish for precious metals.
Moreover, Chinese New Year comes early this year (February 5, 2019), so we can expect a boost in the gold price in the month of January 2019.
5. …Last but not least, let’s take a look at the “Gold Forecaster Index“…I created last year to predict the U.S. dollar gold price based on key leading economic indicators that affect gold (see chart below).
The red line comprises all metrics that are bullish gold and looks at their change in sentiment. The blue line is the gold price. Whenever the red line is above zero, the gold price will go up with a delay of 1 year.
- Capacity utilization is approaching 80%, which is bullish for gold.
- Producer price index has come down year over year, which is negative for gold but is still in positive territory. Consumer price index is still in a rising trend.
- 10 year yield has come down dramatically from 3.24% to 2.58% which should support gold.
- Trade deficits have risen to a 10 year high, which is bullish for gold.
- Money supply growth is slowing down due to tapering, which is negative for gold, but I expect the Federal Reserve to reverse its policies and start another round of Quantitative Easing.
The Gold Forecaster Index is currently in neutral territory, but I expect this index to go into positive territory soon. That would be a buy signal for precious metals investors…
(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
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A note from Lorimer Wilson, owner/editor of munKNEE.com – Your KEY to Making Money!:
“Illness necessitates that I spend less time on this unique & successful site so: