by Peter Schiff, Schiff Gold:
Gold began dipping before the election on November 5th, and with Trump’s win, it has crashed even further. We know that Trump wants a strong US dollar, so does his victory spell trouble for the yellow metal?
As Trump promises to pump up markets, long-term interest rates are continuing to show upward pressure. Once they reach a certain point, markets would be crushed. Democrats would probably like for this to happen, since they can blame Trump and retake the White House next election season. But despite being politically-biased, likely against Trump, the Fed will need to monetize deficits brought on by Trumpenomics to help avoid the banks from imploding.
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Long-term interest rates are facing too much upward pressure. A round of QE from the Fed that is meant to to lower interest rates and avoid a recession will lead to inflation running amok. As usual, the Fed is trapped.
The money printer isn’t just about to turn off. Trump claims he plans on making massive cuts to the size of government, but he promises to cut taxes heavily as well, and if 2016 to 2020 is any example, he’s going to keep spending big. Deficits will remain, and any “saved” money will most likely just go elsewhere. Trump likes heavy spending and money printing as much as any other president, and has criticized faulty economic data on the campaign only to embrace positive data after taking office.
As Peter Schiff said on his recent podcast about Trump’s last stint in the White House:
“He cut taxes, but all that did is run up the deficit, especially since they increased government spending…even before COVID, the deficits went up…the bubble got bigger under his watch, but it didn’t pop…he completely flip-flopped, and all the sudden embraced the very numbers he criticized.”
The likelihood of a recession remains elevated — in fact, we’re likely already in one. Meanwhile, long-term interest rates are trying to edge upward because inflation is still too high. If recession is inevitable, we might as well rip off the band-aid. But the Fed doesn’t want to allow it. Despite being bad for Trump, since he’ll take the blame if it all comes crashing down, the boys at the Fed need to pretend to save the day with QE if the economy gets too close to that brink, which it almost certainly will.
As for gold, a round of QE meant to suppress interest rates will send precious metals soaring higher, and the geopolitical uncertainty that causes investors to flood to the safety of the yellow metal isn’t going anywhere. High deficits and money printing will keep making inflation worse — the same inflation Trump campaigned on fixing, and that his last administration helped create.
Great chart
Our ignorant economists including the Fed think we are beating inflation by bringing it down to 2.5-3%.
Meanwhile on earth the consumers are feeling crushed after a 30-40% rise in prices since before COVID.
H/t @LynAldenContact pic.twitter.com/BiIYH71kxG
— QE Infinity (@StealthQE4) November 16, 2024
If Trump gets his way with a lower income tax and everything “funded” by a 10% tariff, deficits will keep soaring as the new administration keeps pressuring the Fed to print money and artificially stimulate the economy. That means a fresh burst of inflation as dollars flood the market, and goods that America isn’t economically equipped to produce anymore stop being imported and become much more expensive. Meanwhile, befuddled Americans will be trying to figure out why life is still becoming less affordable. All that chaos is terrible for the American saver and consumer, but bullish for gold.
