Gold continues to trend higher, reaching 1349.51, its highest level in nearly a year. The peak from July of last year at 1375.15 defines the next major level of resistance.
The yellow metal continues to be driven by a weak dollar and a host of political and geopolitical uncertainties. While the imminent concern about the debt ceiling has apparently been deferred for several months, make no mistake, this is nothing more than a very short kick of the can.
In that discussion yesterday, President Trump reportedly suggested scrapping the debt ceiling altogether. While that would do away with these periodic uncomfortable votes, where a sovereign default hangs in the balance, the longer term implications would be dire.
Let’s be honest, the debt ceiling always gets raised. We’ve never met a debt ceiling that we didn’t ultimately reach and need to exceed. We are addicted to debt and it is the only thing that keeps our country moving forward. We must constantly borrow prosperity from the future, because our policymakers within the beltway are loathe to meaningfully cut spending, or raise taxes.
It’s a worthwhile exercise to occasionally force the national debt into the consciousness of those politicians — and more importantly the American public — whenever we approach the debt ceiling. I shudder to think where the national debt is headed when the President and Congress no longer need to justify the raising of a debt ceiling.
If we are indeed following in the footsteps of Japan, and destined for a 200% (or more) debt to GDP ratio, the Fed is going to need to maintain interest rates well below what might have at one time be considered “normal”. That bodes ill for the dollar.
Fed Vice Chair Stanley Fischer tendered his resignation yesterday (effective mid-October). That adds to my conviction that Janet Yellen will not be reappointed.
Former Goldman Sachs president and current Director of the National Economic Council Gary Cohn had been seen as a front-runner to replace Yellen. “Like President Trump, Mr Cohn is a self-avowed backer of low interest rates. He is also no fan of a strong US dollar,” reported the FT recently.
Just the kind of guy you want in charge of the Fed if the national debt is about to explode. If you’re a saver though, he will continue to destroy your wealth.
U.S. “strong dollar policy” is already a complete charade, but if all of this comes to pass, I don’t think they even bother trying to perpetuate that charade. They’ll try and force you into the stock market, but if that’s not your cup of tea, your best defense will be to save in gold.
However, in recent weeks, the probability of a Cohn appointment has dimmed. A GOP source close to the White House told CNN’s Jake Tapper yesterday that Cohn is “more likely to get electric chair than Fed Chair.” Besides his criticism of the President’s response to events in Charlottesville, maybe it was determined that he’s not dovish enough on policy.
We’ll see who emerges as the next front-runner for the Fed Chair position, but I’d bet it’s a dollar negative event. And that should keep the wind in gold’s sails.