Precious metal investors are increasingly confused and concerned as gold prices remain stagnant despite mounting economic pressures. Government spending is rising, inflation isn’t going anywhere, and the world is moving away from the dollar.
In this week’s The Gold Spot, Scottsdale Bullion & Coin Founder Eric Sepanek and Precious Metals Advisor Quentin Spillane explain the disconnect between economic health and gold prices, why the BRICS nations are a growing threat, and how investors can stay informed better.
Overspending Divides Republicans
Political infighting has consumed the Republican party over the past few weeks as a faction of the House of Representatives led by Matt Gaetz ousted former Speaker Kevin McCarthy. Although many view the move as controversial, nobody can say the opposition’s focus on government overspending is a waste of political capital.
Just last week, US debt blew past $33 trillion. The government’s relentless spending spree is proving ruinous for the country’s reputation as countries around the globe embark on the process of de-dollarization.
Countries around the world are starting to notice [the US] printing to infinity, and they’re starting to get worried we can’t pay back our debts.
What’s Going on With Gold Prices?
With the government spending-and-printing carousel running at full speed, many investors have anticipated gold prices to react favorably. After all, gold has centuries of proof as a reliable hedge against inflation. However, the yellow metal’s price performance has experienced strong resistance. What gives?
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It’s essential to remember that there’s no direct line between inflation and gold prices, although they’re closely linked. In our highly centralized economy, the Federal Reserve can wield immense influence by raising interest rates. Currently, Fed policies are slowing down the economy and propping up the dollar. The flip side of that strategy is artificially weak gold.
Delayed Tailwinds for Gold
The Fed’s intervention can’t stave off the economic hangover caused by reckless fiscal policies forever. That’s a grim forecast for traditional markets and paper-backed assets but good news for gold prices. It’s only a matter of time before economic pressures bear down their full weight, inevitably acting as a boon to the value of gold.
Analysts from Hareaus1 spelled out this phenomenon of a delayed boost to gold prices by looking back at historical performance:
“The gold price tends to rise following the first cut of US interest rate cycles…On average, since 1984, one calendar year after the Federal Reserve first cuts its rate after a hiking cycle, gold is 10% higher than the day of the decision to reduce interest rates, and after two years is 18% higher. The dollar tends to weaken, yields on U.S. Treasuries fall, and the economy tends to have deteriorated. All of these elements can act as a tailwind for the gold price.”
OPEC & BRICS Against the Dollar
The BRICS nations – a coalition of emerging economies – remain a considerable threat to US hegemony on the world stage. The economic powerhouse has flirted with the creation of a BRICS currency. The potential gold-backed alternative would directly rival the US dollar’s position as a world reserve currency.
Another troubling development is the expansion of the BRICS nations. At last month’s summit, six countries were brought into the fold. Most notably, Saudi Arabia and the United Arab Emirates, two of the most powerful OPEC+ nations, joined the group. This development mirrors an increasing trend of once-staunch, oil-producing US allies warming up to adversaries.
OPEC nations forming against us is one of the biggest concerns that we…have right now.
Experts are already warning of oil prices reaching $100/barrel. This record-setting surge could lead to $7 gas not only in California but in Arizona and other areas of the country where fuel is typically more affordable. Such an escalation would have disastrous consequences for the middle class and, eventually, the entire economy.
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