The Question Is Clear - Will Investors Prefer Bonds In Overwhelming Supply And Fiat Currencies Over Gold?

As quickly as gold dropped after the Trump landslide win, it has rebounded just as rapidly. The post election action in gold this time around is similar to his first victory. Back then it got hammered on his election victory and then had a tremendous run during his term. Past performance is looking to be a prescient predictor about the second Trump term.

Equally as impressive is that it is going up in US dollar (USD) terms, while the USD is going up against all the other fiat currencies. Of particular note is that the Euro is getting pummeled since tensions rose of late in the Russia-Ukraine war putting more attention on gold. 

Earlier this year, gold surpassed the Euro to become the second leading world reserve currency. The fiat currencies are considered a pile of dirty shirts with the USD bulls promoting that the USD as the least dirty shirt. That isn’t exactly a compelling argument to own USD, especially when central bankers have the option to own gold which is the soundest money.

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All of the fiat currencies constantly devastate purchasing power, while gold is playing its role of protecting against inflation and as a store of wealth. They all seem to be in a race to the bottom as gold is in a powerful gold bull market.

America and other countries are in a Death Spiral of Debt and what is getting troublesome for America is that the cost of servicing the debt has become a huge part of the budget. These big ticket items now are social security, health care, servicing the debt and military.

Even if you believed that the Trump team wanted to cut spending in a meaningful way, cutting those big ticket items is not going to get approval by Washington politicians. They can say it is a priority, and give Elon Musk an advisory department, but cutting the Big Four budget items is something the politicians won’t abide by.

Slashing spending on social security, health care and military is a nonstarter, the voters will revolt. The cost of servicing the debt is governed by the level of debt and the interest rates and the costs are compounding in an alarming way.

Powell and his crew want to go into a rate cutting cycle that they have started with two cuts so far. But, they have a roadblock in the way as the bond vigilantes are not cooperating as they drive up the yields while being on a buyers strike.

It boggles the mind to come up with a good reason to buy bonds when they are in abundant supply while paying yields in a currency that is constantly devastating its purchasing power. I guess people believe that bonds are risk free, but that is going to be tested due to overwhelming supply that is only growing as it is on autopilot. 

The only way to slow it down is to slash spending, increase taxes and have much lower interest rates, likely they need to go back to the Free Money Era. But, the bond vigilantes aren’t playing nice with the Fed kids. They are pricing in yields as though they think another wave of inflation is around the corner.

The cleanest dirty shirt of fiat currencies, the USD, is challenged by the Death Spiral of Debt and compounding interest to service the debt are overwhelming battles. It has spiked up since it looked like Trump was going to win and since his landslide victory. On the delusional belief that he would slash spending, ignoring that prior to Biden, he was the highest spending president ever.

The central bankers in the BRICS nations are sellers of American debt and the USD, which they are using to buy gold. They don’t seem to be interested in buying dirty shirts, even the cleanest dirty shirt, preferring to load up on gold. They are in the earliest days of putting themselves on the Gold Standard.

For investors and central bankers, it is coming down to a question of whether they prefer bonds during a Death Spiral of Debt and fiat currencies, over gold. I’m going with gold.

All the best,

Allan Barry Laboucan

Disclosure

i-80 Gold is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers and viewers of the reports as it makes content creation possible for no charge to the Rocks And Stocks News audience. Allan Barry Laboucan is an owner of the tradable warrants of i-80 Gold.

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