Treasury plans to borrow a record $3 trillion this quarter

The coronavirus pandemic has taken us into uncharted territory. The world has not witnessed a pandemic of this magnitude since the Spanish influenza pandemic of 1918. That pandemic infected an estimated 500 million people, roughly 1/3 of the world’s population at that time and lasted for approximately two years. The death toll for the Spanish flu reached approximately 50 million individuals. So, in two years 10% of the world’s population had been killed by the Spanish flu.

The technology of medical science will most likely limit this pandemic lessening the global impact. At the same time, it will most certainly result in a record amount of money spent to decrease the impact of this pandemic.

As a direct result of the coronavirus pandemic both the Federal Reserve and Treasury Department have allocated a tremendous amount of funds. Today the Treasury Department reported that it expects to borrow $3 trillion this quarter (second quarter) to pay for the aid packages passed by Congress last month. The U.S. Treasury also expects to borrow an additional $677 million in the third quarter.

This coupled with the Federal Reserve’s quantitative easing monetary policy will create a budget deficit unparalleled in modern history. These actions will at some point affect the value of the U.S. dollar. As such we could see gold pricing challenge not only $1800 per ounce, but trade to a new record high over the next few years.

Currently gold futures are trading above $1700, a price point which has not been witnessed since gold prices declined in mid-2011. This decline occurred after reaching the record high price just over $1900 per ounce.

Since mid-March of this year, after gold declined to $1450, we have seen gold prices move higher, with three days of consecutive higher lows as gold prices moved through its peaks and valleys.

The tremendous amount of debt that the Treasury Department and the Federal Reserve will accumulate over the next year will swell our budget deficit to a new record high, and this debt will certainly devalue the dollar.

As of 5 PM EDT gold futures basis the most active June contract are up $9.30, and fixed at $1710. After hitting an intraday low of $1676 on Friday, gold futures recovered today as they traded to an intraday low $1700.30 today, after opening at $1711.20.

Our technical studies indicate that current pricing is sitting just at the 23% Fibonacci retracement which is fixed at $1710.70. We also see a return of support at $1700 per ounce. These studies also indicate major support at $1665, which is the low in gold that was achieved on April 21. We currently see the first level of resistance at $1742. This is the intraday high gold traded to on April 22. The next level of resistance occurs at approximately $1764, which corresponds to the intraday highs that occurred on April 23.

Wishing you as always good trading and good health,