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2019 was a solid year for precious metals, with gold up $231 (18.5%) and silver up $2.40 (16.4%) since this time last year. Still, not much attention has been paid to the metals on the financial networks.
Boosting gold’s price was massive central bank buying of the physical metals. Also, stimulating interest in gold were announcements that some really successful hedge fund managers who ordinarily don’t buy gold recently started buying gold.
With the US (and the world) facing economic slowdowns, central bank easing is a given. The Fed is pumping billions of dollars into the money markets via repurchase agreements (repos) and is outright buying $60 billion a month in Treasury bills to finance fedgov’s deficit spending.
However, the Fed denies that it has begun QE4 despite the fact that the Fed balance sheet will increase over the next month by $365 billion (1/3 trillion dollars) to a level of over $4.5 trillion, an all-time high for the Fed’s balance sheet. The Congressional Budget Office projects budget deficits in excess of $1 trillion annually over the next ten years.
Once starting down the road of monetary easing, it must be continued to avert market failure. By market failure, I mean collapsing stocks and skyrocketing interest rates.
However, the bad news is that eventually the money printing must end. It will end either by hyperinflation that results in the money being worthless and not worth printing (as during Germany’s Weimar Republic 1919-1923) or by the Fed slamming on the brakes and calling an end to money printing. Do not look for the latter to happen.
Gold and silver should do very well in the years ahead. While many readers have positions in the metals, if you do not you need an insurance policy against the insanity in that reigns at the Fed, in Washington, and on Wall Street.