The Daily Market Report: Gold Retreats On Renewed Risk Appetite Ahead of Election

07-Nov (USAGOLD) — Gold gapped lower in Asian trading on Monday as focus remains squarely on this week’s U.S. election. The yellow metal extended lower during early U.S. trading, but last week’s low at 1271.00 remains protected at this point.

The market retraced a big chunk of last week’s gains after the FBI announced on Sunday that they had cleared presidential candidate Hilary Clinton again, following a review of more emails that came to light the week before last. “Based on our review, we have not changed our conclusions that we expressed in July,” wrote FBI Director Comey.

The U.S. stock market and dollar welcomed the news with renewed risk appetite. The DJIA is back above 18,000 and the S&P 500 appears poised to end its 9-session losing streak, the longest since 1980. While the dollar index has rebounded, less than half of the recent losses have been retraced.

I agree with a Bloomberg article I posted earlier this morning, that whomever is the next President of the United States, they are likely to be hamstrung by our massive debt burden. The national debt is fast approaching $20 trillion. The budget deficit is expanding once again, “as overseas holdings of Treasuries are shrinking at the fastest pace since 2013.” Meanwhile, the persistent threat of Fed rate hikes has pushed Treasury yields to their highest levels in 5-years.

Warning that the U.S. is in the “early stages of inflation,” former Fed chairman Greenspan told Bloomberg TV this morning that the yield on the benchmark 10-year note could rise dramatically in the years ahead. “I think up in the area of 3 to 4, or 5 percent, eventually. That’s what it’s been historically,” said Greenspan. Imagine the implications for debt servicing costs if the 10-year yield hits even the low-end of Greenspan’s expectations!

Historically, there has been a strong correlation between the debt and gold. As the debt grows, the Fed is obliged to stoke inflation as a means to reduce the real debt burden. The Fed has been unsuccessful in doing so in recent years, hence to drop in gold relative to the continued rise in the level of debt.

However, if Greenspan is correct and we are on the verge of accelerating inflation, the yellow metal has a lot of catching up to do. This likely has contributed to Mr. Greenspan returning to his roots as a gold advocate in the years since his retirement in 2006.