Biden Bailout, Democrat Takeover to Drive Americans into Gold / Commodities / Gold and Silver 2021
As investors await the incoming Bidenadministration and the uncertainties that a transition of power may bring, preciousmetals markets regained some ground through Thursday’s close but have pulledback again on Friday, especially silver and platinum.
Preciousmetals prices and financial markets haveseemingly been unaffected by recent political turmoil. Investors have beennonchalant in the face of Capitol unrest and a second impeachment of PresidentDonald Trump – not to mention fresh new records in daily COVID deaths.
Against this unfavorable backdrop, the stockmarket continues to hit new highs on an almost daily basis. Fundamental analystsare left scratching their heads as to what’s fueling such elevated valuations.
The most likely explanation is that therehasn’t yet been a downside catalyst powerful enough to take investors’ eyes offthe prospect of more fiscal and monetary stimulus to come.
Joe Biden is calling for $1,400 stimulus checksto be delivered to Americans on top of the $600 payments that recently wentout. The total cost of the President-elect’s COVID relief plan, which includesa $15 minimum wage, enhanced unemployment benefits, and a variety of otherhandouts, comes to over $1.9 trillion.
JoeBiden: Direct cash payments, extendedunemployment insurance, rent relief, food assistance, keeping essentialfrontline workers on the job, aid to small businesses. We'll focus onminority-owned small businesses, women-owned small businesses, and finallyhaving equal access to the resources they need to reopen and to rebuild. Ourrescue plan also includes immediate relief to Americans hardest hit and most inneed. We will finish the job of getting a total of $2,000 in cash relief topeople who need it the most. The $600 already appropriated is simply notenough.
All this new spending will be done with money the government doesn’t have. Butborrowing another $1.9 trillion into existence would be just a formality atthis point.
Biden is already set to inherit a record budgetdeficit. The Treasury Departmentreported Wednesday $573 billion in red ink over the last three months alone.That’s over 60% higher than the same period a year ago.
Deficit hawks are virtually nowhere to be foundin Washington, D.C. And the FederalReserve Board is full of doves who intend to keep pumping out easy money intothe financial system.
Monetary policy is one thing that investors cancount on not changing in the new administration.
When he leaves office next week, Donald Trumpwill go down in history as one of America’s most controversial Presidents. He continuesto have passionate supporters as well as passionate haters.
Trump can certainly claim some majoraccomplishments on taxes, deregulation, and border security as part of hislegacy. But he won’t earn high marks on his handling of the national debt. Ithas surged by a staggering $7.8 trillion over the past four years.
As a candidate, Trump had vowed to reduce thenation’s debt burden. But as President, he rarely used his veto pen to try to holdCongress’ spending ambitions in check.
Even before the COVID outbreak, big spenders inboth parties were fueling more federal borrowing than ever before.
Now it’s not even a question of whether thenext President will pay down the debt or balance the budget. It’s a question ofwhat will be required of the Fed to enable four more years of annual deficitsmeasured in the trillions of dollars.
The risk is that more explicit central bankmonetization of federal borrowing causes the bond market and the U.S. dollaritself to lose credibility in the eyes of global investors.
As a consequence, price inflation could runmuch hotter than most investors currently expect. It’s possible that stockscould continue to push higher in such an environment, but it’s also likely thatwe would see some major sector rotation.
Mining companies have big upside potential inan inflationary environment. But they also have big downside risks, especiallyif the political environment turns hostile.
The safer play is to own the mined productsthemselves – physical metals. Gold, silver, platinum, palladium, and copper areall easily accessible to investors in the form of bullion bars, rounds, andcoins.
At MoneyMetals Exchange, we are seeing signs in the first two weeks of 2021that investment demand for bullion is in a word: strong. Some tightness isemerging in popular products.
As Democrats take power with a massive spendingand borrowing agenda, safe haven demand for sound money will likely remainstrong.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2021 Mike Gleason - All Rights Reserved
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