By Sean Kelly
With the Electoral College having voted, it is time for us to address what a Joe Biden presidency will mean for gold and silver prices.
For reasons that we will describe, we are unreservedly bullish about the performance of both precious metals during a Biden-Harris administration.
Gold’s first leg up in this new bull market, deemed by many to have been born in August 2018, powered gold up more than $900 an ounce in two short years, to $2089. It was an impressive move, one accompanied by the recent pullback.
We believe the next leg up, beginning to build now, will be even more dynamic and a prelude to an eventual exponential move up, the kind of move that accompanies currency failure.
We will point briefly to three pieces of evidence to substantiate this bullish outlook. The first is the DEBT AND MONETARY BUBBLE that is already in place. The second, PERSONNEL Is POLICY, is what we know of the Biden and his new administration’s economic proclivities. In the third, COMMODITIES TRENDING UP, DOLLAR DOWN, we will provide evidence of a weakening dollar and a general rise in commodity prices that is now underway.
Debt and Monetary Bubble
The new presidency starts with the burden of the existing debt and all the unbacked currency the central bank has gushed forth. In our election day commentary, Higher Gold Prices…Baked Into The Cake!, we made the point that the debt remains the debt, all $27 trillion of it, no matter the outcome of the election. The money has already been spent and cannot be unspent. It is the same with the Federal Reserve’s money-printing, all $7.2 trillion of it. It cannot be unprinted. That Fed tried “unprinting” some of it back in the fall of 2018, only to tank the stock markets. It promptly reversed course.
In our election day commentary, we noted that in confronting our bubbles in January “the president and the Congress will look to the Fed. The Fed will look to the president and Congress.
“The reality is that neither can do anything about it other than try to paper things over with printing press money for just a little while longer.”
Personnel is Policy
We would be only too happy to report that the Biden presidency will come in with a determination to moderate federal spending and debt. Not only is that not the case, but President Biden’s election owes itself to a coalition of interests virtually all of which are demanding more, more, more.
There is no evidence in Biden’s long political career that he will disappoint them. In lieu of the tedious cataloging of these claimants and their demands on the public purse, we point to Biden’s designee for the pivotal position of Treasury secretary, Janet Yellen.
The reigning economic paradigm in Washington, Keynesianism, holds that the government should run deficits during downturns to “stimulate the economy.” Then, in the hoped-for recovery, those debts may be paid off, leaving dry powder available to fight the next downturn. There is much wrong with this view, but even within its own framework Federal Reserve chairman Yellen proved to be an aggressive money-printing advocate, even during the longest economic expansion in US history.
At Credit Bubble Bulletin, Doug Noland pins some numbers to the money-printing during the recovery. “Yellen was Fed vice-chair when the Fed in 2011 publicly formalized it’s ‘exit strategy’ from extreme monetary stimulus. Rather than normalize, the Fed fatefully again doubled the size of its holdings to $4.5 trillion by October 2014. Fed assets expanded $500 billion during Yellen’s first year at the helm of the Federal Reserve – when there was a strong case for the Fed shrinking its balance sheet.”
President Reagan’s budget director, David Stockman, says that, ““When one of the most dangerous Keynesian money-printers to ever occupy the Fed Chairman’s job is defined as a ‘moderate’, it can be well and truly said that Wall Street has lost its collective mind.”
But now Keynesianism is the least of our problems. It has today given way to a “money-printing on steroids” policy called Modern Monetary Theory. MMT is all the rage among the Biden coalition. Here is a description from a New York Sun editorial called “Janet Yellen to the Treasury? So Much for Fed Independence.”:
“Modern Monetary Theory says that the US can spend as much as it wants, borrow to cover the deficits and monetize the debt with Fed money printing. One of the keys to MMT is to treat the Treasury and the Fed as a single entity with a single balance sheet.
“That’s not legally true, but MMT insists that government can operate as if it were. This means merging Treasury and Fed operations into a single engine for spending, borrowing and printing. What better way to achieve that merger than to appoint the former Fed head as the new Treasury head… Multi-trillion dollar deficit spending plans will emerge soon from the new Congress. Treasury will spend the money. The Fed will buy the Treasury debt with newly printed money. The US will go broke. And a clueless Janet Yellen will supervise the entire operation. Bernie Sanders will surely approve.”
And gold and silver will surely move higher.
Commodities Trending Up, Dollar Down
Monetary excesses and the debt bubble grow larger by the day, so is no surprise that the prices of real things – commodities – are moving higher. The price of zinc, aluminum, nickel, and iron ore are all climbing. Most significant is the price of copper, often a sensitive barometer of rising inflation. Copper is up 79 percent from its low when the lockdowns kicked in nine months ago.
Here is chart of the rising copper price since the lockdown bottom in March.
The Canadian dollar provides other clues to what is coming. It is a currency driven by natural resources including the outlook for gold. Here is chart that show the Canadian dollar trending higher during the same period.
Agricultural commodities are demonstrating strength as well. Here is a chart of corn prices:
Meanwhile, the US dollar is lower:
Each of these charts provides visual evidence that the US and its reckless money printing have not gone unnoticed. You will note on each chart as well that an event at the beginning of November, the election we presume, provided further impetus for the trends underway, bumping bullish trends for copper, corn, and the Canadian dollar, slightly higher, and evident in the further decline in the dollar.
Other Factors that Can Drive the Gold Price Higher
There are additional powerful reasons to expect precious metals to march higher under a Biden-Harris regime. One might look as well to the military interventionist tendencies of its foreign policy personnel. We consider as well that so-far undisclosed yet cascading costs of the COVID-19 shutdown may yield major surprises in the investment world, revelations that will drive the safe-haven appetite of investors. It is too early to affirm anything, but we are hearing some early rumors to this effect from Wall Street already. As Warren Buffet said, “It is not until the tide goes out that you learn who has been swimming naked.” Additionally, consider the spread of negative interest rate regimes around the globe. There are $18 trillion in negative yielding bonds today, a figure that has been climbing steeply and that will no doubt propel defensive gold purchasing. And finally, the Georgia senate runoffs that will be decided in early January could result in a Democrat majority in the US Senate, giving that party the presidency and both branches of Congress. That would remove a vital check on the Biden administration’s powerful deficit spending proclivities.
For the foregoing reasons, we believe aggressive positioning in physical gold and silver now is not merely justified, but vital for those seeking to protect their families, their wealth, and their retirement at this important crossroad.