$100 bill

Every American should know the facts: our nation’s debt is ballooning at an alarming rate.

Treasury Department figures released this week revealed what is going on: a staggering $779 billion in deficit spending in just the last year (fiscal 2018). That’s 17% higher than just one year ago.

No wonder gold started the week at 10-week highs.

Why is the deficit growing so fast?

Simple arithmetic: faster spending at a time of slowing revenue:

Tax cuts are hurting revenues…
Late in 2017, Congress passed a huge slate of corporate and individual tax cuts. These have given a big haircut to the money flow into government coffers.

Spending is rising…
We continue to see negative fiscal impact from the increase in government spending Congress authorized in February. This include expert-recommended increases in military spending with hefty price tags.

U.S. is paying more interest…
Spending on interest payments is growing fast, especially since borrowing is up as well. The string of interest rate increases enacted by the Federal Reserve are sending debt service costs way up.

Federal budget deficits are set to increase rapidly over the next four years, the CBO projects.

When you acquire new debt this fast, interest rate increases carry increasingly large repercussions. We expect a ton of controversy over this hot button issue.

President Trump has been harshly critical of Federal Reserve policy this month, saying the central bank had “gone crazy.”

“Our Federal Reserve is raising [interest] rates too fast,” said the President, “because they think our economy’s too good.”

U.S. retail sales this week seem to back up the idea that our economy isn’t humming along like it should.

Disappointing numbers were released this week: U.S. retail sales rose only 0.1% in September, when analysts were expecting 0.7% or more.

The alarm signal is sounding for many Wall Street analysts.

“The S&P 500 is topping out as [U.S. Federal Reserve] policy normalizes,” says Barry Bannister, head of institutional equity strategy at Stifel. “We’re looking at a lot of volatility in the short term and I believe we’re entering a defensive market,” says Peter Cardillo, Spartan Capital Securities’ chief market economist.

Morgan Stanley has been warning of a near term market correction for a few months now as well.

STOCK VOLATILITY UP, DRIVING SAFE HAVEN GOLD BUYING

Risk aversion seems to be up following recent scary volatility in U.S. stock indexes. While market gyrations shouldn’t be a surprise to investors, they are this time.

David Kosten, chief U.S. equity strategist for Goldman Sachs, says that market hits of 5% or more are actually a common phenomenon: “Since 1927, the S&P 500 has typically suffered a 5% pullback once every 71 trading days,” he said.

In addition, sudden bursts of volatility have become more frequent in the past few years, said Pravit Chintawongvanich, equity derivatives strategist at Wells Fargo Securities.

This is one strong reason why Kitco News reports that “gold is getting safe haven buying interest.” Gold has been shown to provide diversification benefits over time against traditional stock and bond markets, which can make it a welcome addition to a retirement portfolio.

Here are more reasons gold is drawing interest:

U.S. / Saudi Arabia confrontation
The news has been full of headlines about a missing Saudi journalist, causing a war of words between our country and theirs. If suspicions of possible Saudi government involvement are true, the situation could worsen quickly. Saudi Arabia has already threatened retaliation with an oil price hike that could kill our economy.

U.S. Dollar weakness
The dollar seems to be in a corrective pullback from recent gains, says Jim Wyckoff, senior market analyst for Kitco. The appeal of the U.S. dollar – long term – is tied closely to global perceptions of our fiscal outlook and the stability of our nation. At a time of political, social and economic upheaval, it is easy to see why the dollar is looking less appealing. Famed investor Ray Dalio, head of Bridgewater Associates, says the next two years will likely bring a “30% depreciation in the dollar.”

Short covering
Some investors who bet against gold using futures are winding down their positions, according to Kitco News.

U.S. debt skyrocketing
As shown above, the U.S. is digging deeper every day at an accelerating rate. Reality check: if you ran your personal financial life the way the U.S. government does, you would crash quickly. Our huge debt can only be ignored so long.

Mike McGlone, commodity strategist at Bloomberg Intelligence, says gold prices appear to be building a foundation and “solidifying for an extended rally.”

He says gold’s “upside potential far outweighs possible risks” and recent volatility readings for gold are “extremely low.”

KEEP AN EYE ON GOLD

A wide range of professional investors are keeping their eyes on precious metals now:

Commerzbank says gold prices will exceed $1,300/oz again in 2018
Goldman Sachs says gold will be over $1,325 in the next year
RBC Capital Markets says gold will be over $1,338 in 2019
Bank of America Merrill Lynch says gold will hit $1,300 in 2019

Shouldn’t you also consider what physical gold could do for your portfolio in these uncertain times? Think peace of mind, diversification, privacy and more.