The economy seems to be stuck in a flashback as market, political, and geopolitical events continue mirroring those of 50 years ago. In the 70s, rampant inflation spurred stagflation, Israel was at war with its neighbors, and Russia was invading Afghanistan.
Since then, the ruling elite hasn’t just found a way to make zero improvements in decades, but they’ve even managed to make the situation worse. Watch this week’s The Gold Spot to hear Scottsdale Bullion & Coin Precious Metals Advisors Joe Elkjer and Damian White explain the ensuing bond shock, the monumental (and growing) US national debt, and how these economic pressures are impacting gold prices.
Surging Bond Yields Spark Selloff
The Federal Reserve’s aggressive interest rate policy has resulted in a dramatic surge in bond yields. For the first time in over 15 years, the 10-year Treasury yield is nearing 5%.
Rates are going up at a terminal velocity. We haven’t seen this kind of an increase [before].–
It’s important to note that bond rates are inversely proportional to investments. In other words, the value of an asset goes down as bond rates rise. This rapid jump in yields means bondholders are losing out quickly. Bank of America has already claimed unrealized losses of over $131 billion on securities.
This domestic bond shock is sending ripple effects across the global economy as foreign countries seek to safeguard against the increasing risk of US debt. China’s selling of US bonds just reached a four-year high as the CCP aims to strengthen its domestic currency.
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An Unending Debt Crisis
As the bond crisis escalates, the US balance sheet continues accumulating unfathomable amounts of debt. Many people were hoping the $33 trillion US debt record would be a wake-up call for the Biden administration. Those hopes were dashed when debt rose by over half a trillion in a matter of weeks.
The interest on US debt almost doubled over the past two years to $659 billion on the back of laughable spending habits and irresponsible rate hikes. Forecasts place the United States gross federal debt at a staggering $51 trillion by 2033.1
With an entrenched war in Ukraine and a conflagration in the Middle East, many people expect spending to increase in the near future. Biden just served Congress with a $100 billion budget request for the conflicts followed up by a nearly $40 billion ask for childcare and disaster relief. Meanwhile, a fractious House is preventing any meaningful pushback from the other side.
Something is Going to Break
All fingers point to the Fed’s incompetent and reckless fiscal policies as the root cause of this economic catastrophe. It’s the same old story of unchecked spending leading to skyrocketing inflation which is ignored until an overzealous rate hike policy is demanded. No matter how resilient the US economy has been, it cannot outrun the ramifications of this failed strategy.
The system cannot handle this. Something is going to break.–
We’re already seeing cracks in the US economy forming under mounting pressure, and increasing bond yields only make the situation worse. Investors are seeing their spending power dwindle, and their investments shrink. A recent report revealed that mortgage payments on a new home are 52% higher2 than monthly rent.
It seems our fiscal czars are hellbent on inflating the economy out of debt, but their Modern Monetary Theory (MMT) experiment has failed thus far.
Gold Decoupling from Bonds?
Gold prices have been notching higher increases and smaller pullbacks since the Israel-Hamas war began. The recent bond shock sent gold spot prices even further which is unusual considering precious metals tend to move in unison with the bond market. This uncharacteristic development suggests that gold might decouple from the bond market.
The last time that happened in the 1970s, gold experienced a massive price surge. Gold spot prices shot up from around $150 an ounce to over $800 an ounce. Everything is setting up for gold to make a similar move in the near future.
Gold could do something people haven’t seen in 50 years.–
Now is a perfect opportunity to dollar-cost average into gold before prices pop to $2,000 and beyond. Rich Dad, Poor Dad author Robert Kiyosaki recently repeated his advice for investors to accumulate gold instead of trying to time the market.
Gold dropped $10 today. Silver 14 cents. This is where “Dollar Cost Averaging” pays off. Rather than pretend to be Warren Buffet picking bottoms I am an average investor “accumulating” the asset I want for the long term. I have been accumating gold, silver, BC and real estate…
— Robert Kiyosaki (@theRealKiyosaki) October 23, 2023
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