Gold Stocks Throughout The Food Chain Are Primed To Go Into The Most Powerful Bull Market They Have Ever Seen

Smoke and mirrors coming out of Washington is always high, but lately it has reached epic proportions. I’m happy to report that the chorus of those calling BS is increasing as it is no longer just a small group that sees the writing on the wall. Specifically when it comes to the debt crisis, most of them are also rightfully bullish on gold.

At the top of the smoke and mirrors list is Trump who is calling the bill that squeaked through by one vote in the House as big and beautiful. There is nothing beautiful about it (unless of course you are wealthy and want tax breaks or want to see the gap between the rich and the rest grow) but it is most definitely big when it comes to spending.

It will increase the deficit, beyond Biden’s level, and they want either an increase in the debt ceiling by $4-5 trillion or as Trump and Bessent desire is to eliminate it completely.

This should be setting off loud alarm bells that everybody hears, it is with some for sure, Ray Dalio is very vocal about it, as are other ultra wealthy investors. And of course the bond vigilantes are hearing them as well.

Dramatically increasing or eliminating the debt ceiling, while the debt is about to pass $37 trillion and servicing the debt is unsustainable is economic suicide. There is a blatant disregard for the Death Spiral of Debt in Washington. Ray Dalio recently mentioned that America is heading toward a death spiral of debt, the only thing I would quibble with him on is that it is already here.

Bessent is out on the airwaves peddling a couple of astonishing smoke and mirrors points. He says that the US dollar is not dropping, the other fiat currencies are merely going up. Even he stutters and stammers to make that point suggesting that he knows it is hogwash.

What he doesn’t mention is that gold is going up against every fiat currency and is either at or near record highs against all of them. Before our very eyes gold is telling us in no uncertain terms that the fiat currency system is broken beyond repair.

There is something called the “Milkshake Theory” that basically says that the US dollar is the least dirty shirt in the pile of fiat currencies. Which they argue means it will remain the world reserve currency forever.

I have issues with this theory, as it doesn’t acknowledge that in the past decade or so, the US dollar has lost ground in its position as the world reserve currency. The bigger issue I have is that it assumes that investors have to buy dirty shirts (fiat currencies) when there is a perfectly clean sound form of money, gold.

Gold surpassed the Euro to become the second highest reserve currency held by central bankers in 2024. While the American exceptionalism crowd and the least dirty shirt folks ignore that gold is making inroads against the US dollar to become the world reserve currency of the not too distant future.

Even some gold bulls don’t foresee that the return to the Gold Standard is going to take gold beyond $20k and actually say they fear it will go that high. Their fear is bounded by thinking that if gold goes to that level and higher, it means that the world will be in a state of economic calamity.

That calamity is already upon us, which is why I have given it a name, the Death Spiral of Debt. It can only be stopped if politicians slash spending, which they won’t.

Instead they will keep spending (see the not so beautiful, big spending bill they just passed in the House) and have no plans to slash spending. Sorry Elon Musk, your DOGE plans have no support amongst the politicians in Washington including the GOP folks that are leading all levels of the government.

The reason that I use a noun when it comes to the debt crisis is because of the insatiable spending by the politicians on the left and right, plus the level it has reached is unsustainable as is the cost of servicing the debt which is the straw that is breaking the debt camel’s back.

I predicted before Trump was elected that spending would only get worse when he got into office. This wasn’t a stretch, despite those on the campaign trail (including Elon Musk and his euphoric promoting of his DOGE efforts) saying this time would be different.

They all ignored Trump’s addiction to spending and growing the debt during his first term, which was the record for a one-term president until Biden. Trump and Biden’s addiction was incredible because they almost beat Obama (the worst spending addict for a two-term president) in one term each and together smashed Obama’s record.

The big, not so beautiful, spending bill is a perfect example that Trump hasn’t kicked the habit. Trump and Bessent want desperately to increase the debt ceiling by $4-5 trillion, or even worse to eliminate it entirely which is proof positive that Trump is still a spending and debt junkie.

Although Bessent sees the writing on the wall, he is doing everything he can to prove that he is not the economic adult in the room. He isn’t a great poker player as his halting voice as he tries to pitch the smoke and mirrors talking points is the tell that he knows he sees the cards in his hands are not consistent with his cheerleading for Trump.

The nonsense about the US dollar not dropping and instead that other currencies are going up is a case in point. Another is that he is trying to sell that they are going to grow the economy faster than the growth in the deficits has math going against it. Due to the sheer size of the debt, and the increase in spending in the big spending bill, plus the cost of servicing the debt being on its way to $1.5 trillion. That is a circle that can’t be squared regardless of his talking points.

Bessent may be the economic cheerleader for Trump that is willing to ignore reality when he is out on the airwaves, but he also can see the issues and the difficulties with what he is trying to sell. Which is why he also wants to deregulate the American banks allowing them to increase their leverage to buy more US debt.

Therein lies the problem, there is a massive supply of debt that can easily overwhelm the demand. Increasing the spending, plus fighting a trade war against every trade partner is alienating foreign buyers when they are needed most.

Doing all of this while $9.2 trillion of debt has to be rolled over this year is going to cause big problems when it comes to finding buyers for the mountain of debt. Making matters worse is that the Japanese debt market, and others, are having issues of their own. Which is sending a clear message to debt buyers that the entire global debt market is broken.

Foreigners have to be questioning why they own so much US debt and why they shouldn't be selling their positions and certainly not buying more to send good money after bad. If for no other reason that they have to support their own debt markets.

Oops, I may have insulted the American exceptionalism crowd that believes because the US debt market is so big and liquid that foreigners and domestic buyers have no alternative but to continue buying to keep the house of cards intact.

They are so clouded by their belief in American exceptionalism that they either can’t read between the lines or don’t want to. But, the evidence is there for everyone to see if they are looking.

The bond vigilantes see it, which is why the 30-year and 20-year are yielding over 5%. Some brave talking heads on CNBC are even saying that boy oh boy, if the 10-year ever gets over 5%, they will buy hand over fist. The 10-year is at 4.5% and on its way to 5% so their resolve is about to be tested this year.

I think it is more bravado than something they will act on. Afterall, they can already get 5% lending the US government money for 20 or 30 years, why aren’t they and why will a 10-year term make so much difference? The fact of the matter is that there is massive supply and the yield is paid in US dollars which is in a constant state of destroying purchasing power.

I’m no fan of Janet Yellen, but the reality is that in order to keep the debt balls in the air, she had to load up the near-term end of the US debt duration. Bond vigilantes are no dummies, and they are reluctant to loan the government money, rightfully so, for the long-term due to the overwhelming supply, spending and debt addiction of the politicians, cost of servicing the debt, inflation concerns and the constant devastating destruction of purchasing power of the currency they get paid their yield in.

The massive supply of the debt is only going to get much worse. The key reason is the big spending bill, another is the desire to dramatically increase the debt ceiling or eliminate it completely, and the ticking time bomb of the cost of servicing the debt. No wonder the bond vigilantes are driving up yields on the long end and throughout the curve.

Personally, I would want at least 10% due to the overwhelming debt and cost of servicing the debt making for the potential of a debt restructuring (especially for foreigners, Bessent has already floated that idea) or outright default. Plus, that I would need that much yield to protect against the US dollar going much lower over the near-term and long-term.

Come to think of it, I probably wouldn’t accept 10% for 20 or 30 years and would feel more comfortable with 15-20%. I know those are loan shark rates to lend money to the government, but they are degenerate spenders and debt junkies that keep destroying the purchasing power of the currency.

Even Warren Buffett, the greatest investor of all time, and staunch American exceptionalist made the case at the recent Berkshire Hathaway annual general meeting that he sees the potential that they would want to own less US dollars and more currencies and assets outside of America. Sounding the alarm to the American exceptionalists that the American economic empire has serious issues.

Despite Bessent blithely promoting that American financial institutions should have the shackles of leverage removed, what he is saying between the lines is that he knows the supply of debt is so extreme that he needs them to lever up to eat it.

Not only do I believe that the global fiat currency system is broken from the world reserve currency all the way through the fiat currency food chain, I also believe that the debt system is as well. Evidence that the fiat currency system is broken can be seen in gold which is trading at or near record highs against every fiat currency. Further evidence is that all the major debt markets are having issues as their yields are jumping to the upside and popping the global debt bubble.

Generalist investors in the West, retail and institutions may not see it, but it is undeniable. Central bankers, and retail and institutional investors in the East see it, which is why they are loading up on gold.

At the end of the day, the only solution to the broken fiat currency and debt system is gold. I foresee a future, much sooner than later, that central bankers in the East and West need to back their debt up in a much more significant way with gold. Currently, gold is valued at less than 10% of the worldwide government debt and the holdings of the central bankers only covers around 2% of the debt.

At a minimum the central bankers should be backing their debt with around 10% of gold, healthier would be 20%, reasonable would be 30-40% and healthiest would be 50% or more. For gold to get to the minimum, it needs to be somewhere around $20k.

This is not something to fear, it would be the best thing that could happen to the global economy as it would mean that the world would be on the Gold Standard 2.0.

In Closing

All roads are leading to gold due to the Death Spiral of Debt and the broken global fiat currency and debt system. The central bankers can take care of driving gold to multiples of its current price.

Investors that want to protect their wealth and against inflation and stagflation, gold is the answer.

For savvy investors, the gold stocks are the best game in town. The gold miners, from the high-cost to low-cost miners are making money hand over fist as the price of gold is over $1000 per ounce above their costs of mining gold. For the low-cost gold miners, they are selling gold for around double what it costs them to mine gold. Pretty much all of the gold miners are adding cash to their balance sheets at a remarkable pace.

The junior gold miners, mid-tier gold miners, new mine developers with high-quality projects and gold explorers with important discoveries are ready to go into the most powerful bull market they have ever seen.

There has never been a better time to be a gold and gold stock bull.

All the best,

Allan Barry Laboucan