Don’t Watch Interest Rates Too Closely – Watch the Debt Bomb Instead!

More than 20 countries currently suffer from debt over 100% of their GDP but this is particularly problematic in the six rich nations listed below. Japan leads the pack and China’s unofficial debt may match Japan’s. In Europe, France’s debt is rising to Italian levels. As a result, they can’t meet public demands for more benefits, so there have been violent riots plaguing that once-proud nation. France now has the highest level of public spending, accounting for 57.3% of GDP, but that’s apparently not enough for the rioters.

Much of the problem in Europe and America comes from the “Magic Money” (A Wall Street Journal headline about France) based on Modern Monetary Theory, creating a debt time bomb after Europe decided in 2015 to mint/print more euros to “do whatever it takes” to raise rates to attract bond buyers.

As a result, MarketWatch wrote recently that “French bonds are suffering through their worst decade since 1803.” That is the year Napoleon and America entered into the agreement for the Louisiana Purchase (nearly a million square miles in the heart of America) for just $15 million. That was pennies an acre and it was all because his government was so deep in debt then.

The G7 nations (the six listed above, plus Germany) met in June to address their rising debts but they had no solution. According to MMT, debt is not a problem, since nations can print more money. However, fans of MMT cannot point to any time in history when that strategy worked without fueling runaway inflation.

After Tripling in 27 Months, Where “Should” Gold and Silver Move Next? 

Gold, silver and platinum rose strongly after the Hamas invasion of Israel on October 7, 2023, a brutal attack that came early on a Sabbath morning, just after Yom Kippur, their holiest day of the year. This attack came on the 50th anniversary of the surprise attack on Israel in the Yom Kippur War that began on October 6, 1973.  Over the next 27 months, gold and platinum tripled, while silver rose over 5-fold.

After such rapid increases in just over two years, it would be normal for precious metals to take a “pause that refreshes,” to absorb and digest those gains with moderate price declines to a new floor. In 2023, we would have been ecstatic about gold “building a new floor at $4,000” but after rising above $5,000 a floor of $4,000 sounds low. In such situations, we need to compare gold to all the false paper promises that deliver 5% interest rates but NO GROWTH, over time. For instance, the dollar is 3% stronger this year but it fell by 10% last year.

After briefly dipping below $4,000 on July 29, Gold stayed above $4,000 for nearly five months, dipping below $4,000 briefly again on October 26. It then rose quickly back above $4,000 an ounce by mid-week. As we’ve said before, gold is primarily a monetary metal, responding to currency debasement as well as global crisis events as a “safe haven” investment, while platinum is primarily an industrial metal and silver is in the middle, with about 50% industrial uses and 50% in decorative or monetary applications. Also, gold and platinum – the higher-priced metals – are primary targets of global mining operations, while silver is mostly (70%) a byproduct of mining other metals, with only 30% from silver operations.

With that in mind, where “should” gold and silver go in the next year: 

·       Gold, as a monetary metal, is in constant demand from high and rising central bank demand, amounting to an estimated 23 million Troy ounces (over 700 metric tons) in 2026, 15% more than 2015 central bank demand. Also, gold ETF demand adds physical inventory to back ETF funds. We are also seeing strong private demand in China and Indian buying in advance of Diwali on November 8 and other upcoming Asian holidays – the heaviest gold-buying times in those countries. If these demand forces continue, we should reach $5,500 by mid-2027.

·       Silver rose so fast that its recent retreat is understandable. A price of $50 used to be a ceiling in 1980 and 2011 but now $50 has become silver’s new floor. The price decline was made worse by all the melting down of industrial and private silver at prices over $100. Refiners were unable to handle the deluge of “junk” silver for melting. But the best cure for market extremes is the “buy on the dip” reaction of long-term investors, so we should see a return to $60 silver next year.

During the rush to melt silver and gold, as prices were skyrocketing, people brought in silver platters, bowls, candlesticks, broken jewelry, class rings, etc. However, it wasn’t just household items and discarded trinkets being melted down and exchanged for dollars; tens of thousands of common date, rare silver and gold coins in varying denominations were also being brought to silver and gold refiners.

It will take a few years to realize the impact of exactly what it means from a numismatic perspective, but with so many coins now removed from existence, coin populations will shift and rare coin values will increase. Long-term, some of the gold and silver coins we wouldn’t have originally included in our recommended collections will get a second look because so many were destroyed. As I previously stated, you should always buy on the dips, but going forward, you really need to contact one of our account representatives to learn where the rare coin market is headed amid these dramatic decreases in coin populations.

The Fed left interest rates unchanged on Wednesday, and the markets basically yawned. Historically, the Fed has not wanted to impact any election outcome by changing its Fed funds rate so close to an election. Two of the 12 Fed voters favored a rate increase but a 10-2 majority prevailed and left rates unchanged.

Gold bounced back to $4,066 on the COMEX Wednesday after the Fed meeting, up $75 since the Monday lows. Silver is still struggling, at around $51 an ounce, but platinum is up strongly on the Fed’s decision, up nearly $50 per ounce from Tuesday’s low of $1,494 on COMEX to $1,542 midday Wednesday. By comparison, the numismatic market has been strong this year, eclipsing the declines in gold and silver as some of our exclusive 20/20 Program rare gold coins saw significant gains while bullion prices fell.