Insights From Jesse Felder – Thu 23 Aug, 2018

The Fundamental Case For Owning Gold Today

Jesse Felder is a good friend of the show so when he writes about the metals or commodities I pay attention. Actually I read over everything he writes… below is his latest article on the main factor he thinks should drive gold higher.

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…Here’s the article..

Recently my friend Ben Hunt pointed out that gold is really more a hedge against a central bank mistake than a hedge against geopolitical upheaval. I agree but I believe gold is an effective hedge against a fiscal mistake, as well. In other words, when the government gets very aggressive in a budgetary sense it can be positive for gold. And I guess these two points are related.

Many times a central bank mistake forces the fiscal authorities to step in and get aggressive with the budget. Just think of the financial crisis. The Fed engineered a real estate bubble that, when it burst, forced the Treasury to step in and backstop the financial system to the tune of hundreds of billions of dollars. The federal government was also forced to implement significant fiscal stimulus during the recession that followed. This led to a record budget deficit of over a trillion dollars and the gold price soared.

Whether gold soared at that time due to the central bank mistake or to the fiscal authorities response is certainly debatable. That gold initially declined into the crisis and then soared alongside the federal deficit until well after the crisis had been apparently averted, though, is a fact.

Since then the budget deficit has narrowed and gold prices have fallen. However, the CBO estimates that, as a result of the recent tax cuts, the deficit will again surpass a trillion dollars by 2020. In this case, we have the fiscal authorities getting aggressive outside of recession or a central bank mistake. In my view, this provides a positive backdrop for gold prices all by itself.

Furthermore, if we get a recession over the next few years, (perhaps precipitated by a central bank mistake?) we could actually see a $2 trillion deficit by 2021. And it’s hard to see how that wouldn’t be very bullish for the yellow metal that everyone seems so keen to condemn currently.

Jesse Felder
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  1. On August 23, 2018 at 6:52 pm,
    Excelsior says:

    My buddy Jay – FIfighter posted this S&P GSCI : S&P 500 chart from Bloomberg.

    It is definitely worth reviewing for any contrarian investors out there: