Gold moves higher on fiscal stimulus optimism

The entire precious metals complex had moderate gains today. Today’s gains were partially due to a renewed optimism that the United States will pass some sort of stimulus aid package prior to the election. The market was also aided by slight tailwinds from a fractionally lower dollar.

While it is highly acknowledged by economists including the chairman of the Federal Reserve Jerome Powell, that it is essential that the government passes a fiscal stimulus bill which would go to the millions of Americans currently unemployed or underemployed. The proposed revision would also reenact the PPP (Paycheck Protection Program) so that businesses that were forced to shut down during the global pandemic have the capital needed to restart their business and bring back employees.

The discrepancy between the Republican proposal and the Democratic proposal is whether or not to fund states, who the Republicans have claimed squandered their tax dollars ineffectively. Nonetheless both parties agree upon the urgent need for an infusion of capital to help those who do not have the ability to pay the rent or mortgage, or even buy food.

While a few days ago President Trump broke off the negotiations stating that they would occur after the election, he has since backed off of that statement. Apparently, that statement was used so that he could gain an edge during negotiations rather than planning to follow through with that statement.

But here’s the rub; assuming that the House and the Senate are able to come to a viable agreement which would include a $1200 check to taxpaying Americans, and add an additional $600 in unemployment benefits to those that are unemployed, the repercussions cannot be overlooked.

The nonpartisan Congressional Budget Office today projected that the U.S. budget deficit has hit a record $3.1 trillion for the recently concluded 2020 budget year.

The CBO report said that, “Relative to the size of the economy, the deficit—at an estimated 15.2 percent of gross domestic product (GDP)—was the largest since 1945, and 2020 was the fifth consecutive year in which the deficit increased as a percentage of GDP.” 

While this is only an estimate the Treasury Department and the Office of Management and Budget will announce the actual numbers later in November.

So, if in fact our budget deficit for 2020 is at around $3 trillion, and we added another $2 trillion if a fiscal stimulus bill is passed the United States will have accrued the largest amount of debt on record.

It would be hard to see dollar strength if the deficit grows to such an enormous extent. It would also be logical that the safe haven asset gold would benefit from a deficit that is the greatest in proportion to the economy since World War II.

Wishing you as always good trading and good health,