The Daily Market Report: Gold Remains Defensive, But Downside Seen as Limited


USAGOLD/Peter Grant/09-13-17

Gold slipped deeper into the range as the GOP leaders talked about a path forward on tax reform. Though absent specifics, the prospect of some legislative advancement on this front further stoked risk appetite, which weighed on the yellow metal.

It would be the “the beginning of the process . . . to achieve for the first time in a generation, overhauling our tax system and giving middle class families a much deserved break,” said House speaker Paul Ryan. However, details of that plan won’t be out until September 25. At that point, the political wrangling will begin in earnest.

According to Politico, completing a budget with tax language included won’t happen until mid-October. It’s worth noting that the new fiscal year starts October 1. Of course we now have a fairly long history of tardy budgets; and in some recent years, no budget at all.

Mike posted an excellent interview earlier today with economist William White, who contends that we face
“more dangers now than in 2007.” That’s a pretty startling — and candid — admission from a establishment policymaker. As Mike suggests, it is a warning that should be taken seriously.

White’s main area of concern is the rapid accumulation of debt in various countries around the world. This is something we’ve written about ad nauseam, both in the years leading up to the financial crisis and in the years following.

The financial crisis at its core was a debt crisis and you don’t extract yourself from a debt crisis by going deeper into debt, which is exactly what we’ve done. It bought some time to be sure, but we’ve squandered that time by failing to address the underlying issues.

Politicians are loathe to address the debt, because you need to either cut spending or increase revenue (taxes). Neither is terribly popular with voters.

By doing nothing, the politicians pushed the problem off on central bankers who crafted extraordinary monetary policy to support massive debt burdens. Low rates and weak currencies. However, there is only so much they can do once rates are at — or slightly below — zero and their balance sheets become bloated.

There is another day of reckoning coming and the time to begin building your protective hedges is as far in advance of that day as possible. If as White suggests, the dangers are greater today than they were a decade ago, the time to buy gold is now.

As a reference, note that the price of gold in the second week of September 2007 was $707. Over the next 4-years, the price of gold rose 172% to 1920.84 before the smoke cleared.

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