Gold Is A Lock As Stagflation Is Incredibly Bullish For Gold

During Powell’s interview in Dallas yesterday, it was shocking to hear the Fed say that it is only the path of debt growth that is unsustainable, not the level of debt.

Estimates for GDP in 2024 is around $29 trillion, while current federal debt is $36 trillion, so debt is significantly higher than GDP. The debt to GDP is at a level that is usually reserved for much smaller economies that are not run with healthy fiscal policy, not the largest economy in the world.

Trump is a massive spender and before Biden leaves it will go up significantly. There is a very good chance that the debt will get alarmingly close to $40 trillion in 2025. If interest rates stay around where they are, the cost of servicing the debt is on its way to $2 trillion.

Depending on which estimates one uses for the tax revenue for 2025, servicing the debt is going to consume an alarmingly high percentage of income. 

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Spotlight On A Top Pick

This section of the written reports is for highlighting sponsors at Rocks And Stocks News and top picks.

McEwen Mining is a gold and silver miner, and also advancing one of the best undeveloped copper projects toward becoming a copper miner of the future at their subsidiary McEwen Copper. They are led by Rob McEwen who made his fortune building Goldcorp from a small gold miner into a free cash flow machine that was one of the best performing gold miners in the industry during his tenure, and as an astute investor in mining stocks.

McEwen Copper has one of the top 10 undeveloped copper mines worldwide that is also in the lowest quartile for estimated cost of mining copper, of all copper projects in development. Recently, they completed a financing that brought in $35 million from Nuton, a Rio Tinto venture. With this recent investment, Nuton has invested $100 million into McEwen Copper.

Nuton is an interesting company, they are a Rio Tinto venture that was founded on 30 years of research and development to optimize copper recoveries while reducing the environmental footprint from mining copper.  

McEwen Copper’s plans for their Los Azules copper development project include goals other miners should use as an example. They will use 100% renewable resources, and only use a quarter of the water that a conventional copper mine uses. They will produce copper cathode so there will be no need to ship concentrate out of Argentina for smelting. Plus, they will build a modern facility to house their workers that is being designed by the architect known as the Steve Jobs of the green building industry. It will be one of the most sought after mines to work in for Argentinian miners for generations.

Nuton and McEwen Copper’s visions are perfectly aligned on what they want the future of copper mining to be.

Hidden inside of McEwen Mining’s Fox Complex is an underappreciated gem that is an explorer’s dream project. Goldcorp went through a transformation when they drilled deeper into their gold system and found the bonanza-grade portion of the system, when they found and mined that the rest was history. The drill rig was the key to the Goldcorp transformation and a similar potential is present at the Fox Complex.

The bullish arguments for gold, silver and copper are very compelling and McEwen Mining has fantastic growth prospects in all of those metals.

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I wonder at what point Powell will admit the level of debt is unsustainable, when servicing the debt is the biggest thing the government spends its income on from taxes?

Things aren’t adding up, and you don’t need to be an economist to figure it out, it is simple math.

Another alarming portion of Powell’s chat in Dallas was when he talked about the economy concerning immigration. He said that the mass immigration over the past couple years has been good for economic growth. The interviewer then asked the perfect question, when she asked if mass immigration has been good for the economy, what does it mean if there is mass deportation. He wouldn’t answer that question.

Ultimately, elections are always about the economy. Voters just said it is not a Goldilocks economy. They are under pressure from the economy shedding higher paying full-time jobs while lower paying part-time jobs with no benefits. Government statistics don’t differentiate between part-time and full-time jobs. If a worker loses a full-time job and then has to take on two part-time jobs, the BLS considers that a one job gain. 

Equally as troubling for voters is that they have seen the purchasing power of their money devastated over the past couple of years. Although the rate of inflation (using the government's statistics which exclude many things consumers buy every day) has come down, it is still growing.

Voters have their fingers on the pulse of the real economy, not the one portrayed by the government’s artificial economic statistics. They were clear on election day that the economy is struggling.

The bond vigilantes have been selling bonds and driving up yields. They do that when they are concerned about inflation.

Voters and bond vigilantes are sending the message that stagflation is rearing its ugly head. The last time that happened gold went on a spectacular run.

Powell made the case that they are getting rate policy perfect, so it is all Goldilocks policy to him and the Fed. Plus, he thinks there is a Goldilocks economy.

Things aren’t adding up concerning the sustainability of the debt level, with less than Goldilocks policy in a Goldilocks economy. 

Sounds a lot more like Gold Is A Lock than Goldilocks.

All the best,

Allan Barry Laboucan