from Birch Gold Group:
This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: Gold forecasts ahead of the election, Powell feints as U.S. economy crumbles, and Kuwait bolsters its place on the list of gold consumers.
Experts forecast a shaky dollar will send gold to $2,500 next year
For all the bearishness we’ve seen this year regarding gold in the headlines, it seems gloomy forecasts for a 12-month period are hard to come by. British research firm Capital Economics, for example, expects gold to end next year around $2,100, with rate cuts as the primary driver.
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This is actually very moderate, as the same forecast anticipates a 200-basis-point cut to interest rates within the year. If rates drop that much in 2024, investors have plenty to worry about. Not least, dropping the Effective Federal Funds Rate (EFFR) to 3.3% would put it back in “easy money” territory – effectively undoing about half the work of the current hiking cycle. The Fed’s most recent dot plot projects interest rates in the 5.5%-4.75% range throughout 2024. Then again, the Fed has an absolutely abysmal track record at anticipating their own decisions, so it’s not outside the realm of possibility…
We know without question that, at some point in the future, the Fed’s efforts to clean up their own mess will cause a recession. Which they’ll proceed to fix with rock-bottom interest rates and a tsunami of freshly-printed money…
The question is, WHY?
That is indeed the question asked after every boom and bust cycle brought to us by the Federal Reserve, and this one looks to be one for the history books even with cut severity still being up in the air. Cutting rates by such a large amount would stress the economy, worsen the federal government’s debt situation by making U.S. IOUs less appealing and obviously hammer the U.S. dollar. Needless to say, all massive tailwinds for gold.
On the other hand, IG Wealth Management’s Philip Petursson sees gold next year possibly climbing as high as $2,400. Petursson, who believes gold might be undervalued by as much as 20%, mentions the weakening of the dollar as perhaps the main driver of this upwards correction.
And how could we forget that an election is coming? Even as it’s not exactly around the corner, we’re already seeing a few analyses attempting to determine whether a Republican or Democratic candidate spells better news for gold.
In this debate, the only statistic that should really matter is that gold averages an annual return of 10.2% with a Republican sitting in the Oval Office and 11.2% with a Democrat keeping the chair warm. It’s one of those, “Heads you win, tails you don’t lose” situations.
Beyond that, it’s also worth mentioning that elections introduce volatility and uncertainty, which go hand-in-hand with gold investment.
Of course, this time around, things are a little different. We didn’t hesitate to assert that monetary policy would be the focal point of any candidate’s run, given what has transpired over the last three years. The problematic, gradual destruction of the U.S. dollar is something that most, if not all Americans can unite against.
We don’t want to make too many more predictions here just yet. But if Trump was sounding many economic alarms way back in 2016, when things seemed rosy in comparison, it might not be a stretch to expect a very favorable election year for gold.
Powell hints towards more hiking amid hilariously bad U.S. economic backdrop
The price of gold has pulled back from $2,000 once again as the widespread impact of the Gaza conflict began to be questioned. Some will argue that equally, if not more so, the reason was that Fed Chair Jerome Powell hinted towards more rate hikes. In so many words, he said that the inflation rate still isn’t as low as the Fed would like and that it might be persistent. This is the same Powell that called inflation transitory not long ago, but everybody makes mistakes! Let’s not roast him for that again.
What we would instead like to bring attention to, again, is the U.S. economy’s position as this saga unfolds. It goes without saying that, the greater one’s monetary tightening hopes are, the stronger the economy needs to be. If it isn’t that, unemployment and destitute living become the norm. From citizen to pundit, many agree we are already there.
Moody’s is now the third of the major credit rating corporations that has downgraded the U.S. federal government’s credit rating. This one, in particular, comes off particularly harsh in its message. We went from “stable” to “negative”. Think about that for a moment: the world’s largest economy and only superpower is no longer considered stable enough for a loan.
Specifically, Moody’s said: “with higher interest rates and without effective fiscal policy measures to reduce government spending or increase revenues,” deficits would remain large and weaken the country’s debt affordability. Furthermore, that “continued political polarization” in Congress raises the specter of debt default as well as reduces the confidence of potential creditors.
Would you loan money to a large, squabbling family who publicly argued over whether or not they intended to pay you back?
The downgrade could merely be a testament to numbers, as anyone can tell you. The deficit is jumping by the trillion, the U.S. debt even more so, and there are no solutions in sight. Whatever you might be told, there is only one solution on the table, and only one that is ever going to be applied. That is, of course, to print more money.
