By Sean Kelly

Today we would like to point out that research by the World Gold Council endorses our assertion that gold will go up no matter who was elected president.  (See our posts Higher Gold Prices…Baked into the Cake! and What Happens to Gold If “You Know Who” Wins the Election?)

Juan Carlos Artigas, WGC’s Head of Research, writes, ““Looking back, gold’s performance has not significantly differed based on the party controlling the White House. Since 1971, gold returns were 11 percent on average per year during Democratic presidencies and 10 percent during Republican ones.”

Gold Chart

The Post-election stock market is focused on anticipation of new stimulus packages for taxpayers and deficit-financed infrastructure measures in the Biden presidency.

There is a peculiar unanimity of opinion about all these issues, an assumption that stimulus measures can be enacted with little or any thought given to the mounting debt they require.  That should be a caution sign.  A couple of sample headlines illustrate the group-think consensus about the Everything Bailout:

TIME:  If We Don’t Move Fast, the Economy Is Going to Get Much Worse

CNN:  Markets Have Had Their Election Party. Is a Hangover Coming?

The CNN story features a remark by Senate Majority Leader Mitch McConnell that the stimulus package will materialize sooner than previously expected.  USA Today featured a piece with a lead about Biden’s “bold spending plans.”  These are plans that we are told “will create new economic output, generate millions of jobs, help workers better prepare for high-skilled positions and increase the nation’s productivity, or output per worker.”

USA Today:

“Biden is proposing $7.3 trillion in new spending over 10 years, including upgrading the nation’s roads, bridges and highways; building a clean energy economy; investing in research and development to bolster manufacturing; ensuring the government and its contractors buy American products; providing tuition-free community college; ensuring access to affordable child care and universal preschool; and providing aid for Americans to buy or rent homes.”

Okay.

But how will these “bold spending plans” be paid for?

It won’t be from recovery-driven tax revenue.  Before COVID-19 hit earlier this year, we had experienced the longest recovery in history.  But the deficits ran a trillion dollars a year anyway.

It won’t be funded by foreign creditors like China.  China’s US debt holdings have fallen by almost 30 percent, a sign of things to come.

It will have to be funded by the Federal Reserve.

The school of thought that animates much of Washington today is Modern Monetary Theory (MMT).  It is not modern at all; it is an old notion.  The central idea is that as long as the government has a printing press, it can print all the money it wants.  It does not even need to use taxing authority. The theory holds that the government can just print away.

When this philosophy reemerged with the name “modern” a few years ago, thoughtful people laughed at it.  But when COVID struck, the Fed quickly printed $3 trillion dollars.  And thus, MMT became US policy.

We have arrived at the intellectual conclusion the drove the money madness in Germany in the 1920s, in Zimbabwe a dozen years ago, and in Venezuela over the last decade.  They all practiced Modern Monetary Theory.

Meanwhile, the World Gold Council provides Americans with a timely reminder that the gold is a global market in which we are only number three:

“It is purchased by consumers and investors around the world for a myriad of reasons, but primarily as a means to preserve capital and diversify risk. The US is the third largest gold consumer market, accounting for approximately seven percent of global physical gold demand in the form of jewelry, technology, bar and coin, and ETFs… There is still a large portion of physical gold demand that is influenced by global dynamics well beyond the US election.”

10 Year Average Consumer and Investment Demand

The rest of the world is watching Washington’s plans to spend with only the printing press to back it up.  Its verdict will be rendered in their willingness to hold US dollar reserves, and in their rising preference for gold.  That is why gold reached all-time highs in virtually all the world’s currencies this year.  We suspect there is more of that to come.

For now, all we can do is thank Wall Street traders and speculators for giving us a window of opportunity to buy gold and silver at somewhat lower prices.

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