Gold Trading Tight, Trump to Issue Record Bond-Market Debt
Thursday, 12/05/2024 15:57
GOLD SLIPPED on Thursday alongside bond prices but held in a tight trading range amid mixed US economic news ahead of tomorrow's non-farm jobs and wages data for November, the month Donald Trump won re-election to the White House.
Trading at $2645 per Troy ounce in London today – and despite political turmoil in OECD democracies France and South Korea – gold has since last Friday made its smallest weekly change so far since the start of October, slipping by $11.
Silver meantime erased last week's 1.8% drop on Thursday to trade back up at $31.30 per Troy ounce, while 'digital currency' Bitcoin pushed further above $100,000 per unit – up 132.1% year-to-date – after President-Elect
Trump nominated light-touch crypto-advocate Paul Atkins to chair US financial regulator the SEC.
With gold now showing a 2024 gain of 28.8% – neck-and-neck with the S&P500 stock index, trading flat Thursday from last night's fresh record high – US banking giant Wells Fargo forecasts gold will end 2025 at $2900 while investment bank Goldman Sachs predicts $3000 per Troy ounce.
Canada's CIBC now sees gold trading at $2800 by the end of next year, the same level Australian bank Macquarie predicts gold will average between April and June – 12% above its previous Q2 2025 forecast.
Macquarie also sees a chance the precious metal could "quickly challenge $3000" if Asian consumer demand revives like
this spring's China gold investment surge or if
Trump's unfunded tax cut plans spook the bond market.
"Official budget projections suggest Donald Trump needs bond investors to buy record amounts of government bonds," says UK fund manager Ruffer.
"These
estimates do not include the fiscal promises Donald Trump made in the election...estimated to add $7.8 trillion to federal debt over the next decade, roughly a 25% increase on current projections.
"[So] unless Donald Trump reneges on his key campaign pledges, the supply of government bonds hitting the market in the years ahead will be even greater than the chart suggests."
With
the federal government now owing 120% of America's annual economic output, US Treasury bond prices have already fallen for 4 years running, driving Washington's cost of borrowing up from the Covid pandemic's record 2020 low of barely 0.5% per annum to 4.23% today on benchmark 10-year debt.
"Of course, Elon Musk might come to the rescue," says Ruffer of the world's richest man, tasked with finding ways to slash spending in a non-government role, with plans to "cut at least $2 trillion (30% of 2024 outlays) from federal spending.
"He might as well have said pigs can fly. Cuts on that scale would be economically dangerous and politically unacceptable to Trump. [Because] the electoral coalition that has just returned him to power is the main beneficiary of the 60% of total federal outlays the government transfers each year to pensioners and lower income households."
Looking at gold, "Trump's implementation of tariffs could lead to retaliatory tariffs on US exports," says CIBC, "driving inflationary pressure and supporting gold prices, which have historically risen alongside inflation."
Gold ETF holdings are meantime "25% below their 2020 high," says Macquarie, "suggesting plenty of scope" for investment inflows because of falling interest rates "reducing the [relative] appeal of money-market funds and other savings products" over non-yielding gold.
Giant gold-backed ETF the SPDR trust (NYSEArca: GLD) shrank again Wednesday, down another 0.3% on net shareholder liquidation to the smallest in 2 weeks.
World No.2
gold ETF the iShares Trust (NYSEArca: IAU) also shrank a little, edging back to its smallest since in over a week.
With activity in the US services sector growing much less quickly last month than analysts forecast for either the S&P Global or ISM PMI surveys, today's economic data said the US trade deficit shrank by $10 billion in October from the month before to less than $74bn, but new claims for jobless benefits jumped by more than 4.1% on the latest weekly numbers.
France's President Emmanuel Macron must now select a new Prime Minister after Michel Barnier was ousted by a vote of no confidence over his budget plans, making his Government the shortest lived of the Fifth Republic, while police in Seoul are investigating South Korea's President Yoon Suk Yeol for insurrection as Parliament votes on his impeachment for imposing martial law.
Human rights campaign group Amnesty International today
accused Israel of committing genocide against Palestinians in Gaza, a claim
rejected by staff at its own branch in Jerusalem.
Ukraine meantime re-took a town in its eastern Donetsk region, reportedly inflicting "heavy losses" on Russian forces.
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