Gold rises on optimism in fiscal stimulus

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The entire Precious Metals Complex posted moderate gains today. Today’s gains were in part due to renewed optimism that the United States will adopt some kind of stimulus package ahead of the election. The market was also helped by slight tailwinds of a slightly lower dollar.While it is widely recognized by economists, including Federal Reserve Chairman Jerome Powell, that it is essential that the government pass a fiscal stimulus bill that would go to the millions of Americans currently unemployed or under- employees. The proposed revision would also replenish the Paycheck Protection Program (PPP) so that businesses that were forced to shut down during the global pandemic have the capital to restart their businesses and bring back employees.

The divergence between the Republican proposal and the Democratic proposal is whether or not to fund states, which Republicans say have wasted their taxes inefficiently. Nonetheless, both sides agree on the urgency of an injection of capital to help those who cannot afford the rent or the mortgage, or even to buy food.

While President Trump halted negotiations a few days ago by declaring that they would take place after the election, he has since waived that statement. Apparently, this statement was used so that he could gain an advantage during the negotiations rather than planning to follow through on this statement.

But here’s the catch; Assuming the House and Senate are able to come to a workable deal that includes a $ 1,200 check to American taxpayers and adds an additional $ 600 in unemployment benefits to those who are unemployed, the repercussions cannot be overlooked. .

The non-partisan Congressional Budget Office today projected the U.S. budget deficit to hit a record $ 3.1 trillion for the just ended 2020 budget year.

According to the CBO report, “Relative to the size of the economy, the deficit – at about 15.2 percent of gross domestic product (GDP) – was the largest since 1945, and 2020 was the fifth consecutive year over of which the deficit increased as a percentage of GDP. ”

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

So if in fact our budget deficit for 2020 is around $ 3 trillion, and we add another $ 2 trillion if a fiscal stimulus bill passes, the United States will have accumulated the largest amount of debt never recorded.

It would be difficult to see the strength of the dollar if the deficit increased to such a high degree. It would also make sense that the gold safe haven asset would benefit from the largest deficit as a proportion of the economy since World War II.

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Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept guilt for any loss and / or damage resulting from the use of this publication.

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