Shutdown or not, government dysfunction = higher gold prices

Sovereign Man provides actionable intelligence and rational solutions for personal liberty and financial prosperity. Read more at www.sovereignman.com

All eyes are on Washington to see if the government shuts down when the clock strikes midnight tonight.

Funny thing is, most people aren’t really going to care—because all of the “essential” services will keep running. (Which makes you wonder: why do non-essential government services exist on the taxpayer’s dime in the first place?)

But today is also the end of the fiscal year. And based on the data, we can see that the US will end the fiscal year with around $37.5 trillion in debt. That means, for Fiscal Year 2025, the debt will have increased by another $1.8 trillion.

Taken as a whole, this is an obvious testament to why foreign governments and central banks are rapidly losing confidence in the US government.

It doesn’t even matter whether the government shuts down tonight— it is the fact that it always comes so close. That Congress can’t even manage to pass a basic budget.

And the “solution” on the table is just another short-term patch— a continuing resolution that keeps the government funded for less than two months, until November 21st.

America looks like exactly what it is: a dysfunctional government that can’t even pass a budget.

Frankly, it’s embarrassing.

On top of that, you’ve got this $37.5 trillion debt growing by leaps and bounds—faster than the US economy and faster than tax revenue.

At a certain point, these foreign governments and central banks, who collectively own trillions upon trillions of dollars worth of US government bonds, start wondering: why should I continue to own these securities? Why continue to lend money to the US government?

They can’t even pass a routine budget, let alone the kind of budget that would actually reassure foreign governments and central banks—a truly controversial one that makes deep, necessary cuts to runaway spending.

Then there’s another problem—one that isn’t new. It started under the Bush administration, Obama elevated it, and Biden perfected it: the weaponization of the US dollar, the financial system, and US Treasury bonds.

This gives foreign governments and central banks obvious concern: if they do something the US doesn’t like, they’re going to be frozen out of the dollar system—out of their Treasury holdings, and out of dollar-denominated assets altogether.

And these are all reasons why we believe, over the long run, gold will continue to march higher: central banks will continue to buy gold as an alternative to US dollars.

Why gold?

It’s an independent asset. It’s not controlled by any government. No country is worried that America will freeze its gold holdings. Millions of troy ounces of bars and bullion stored around the world can’t be frozen with the click of a button.

Gold is universally accepted by every other country and central bank. There’s a global market for it. And it’s an asset class large enough to absorb billions of dollars— or even tens, or hundreds of billions—over time.

You can’t say that about most other asset classes.

Gold has already had an astonishing run—especially this year. But we think that, over the long run, as more foreign central banks allocate an increasing percentage of their strategic reserves into gold instead of dollars, that excess demand will continue to push the gold price much higher.

Gold is like anything else—subject to the laws of supply and demand. Demand for physical gold by governments and central banks around the world has been very strong.

And based on the data we’re seeing, that continues to be the case.

The Chinese central bank has bought another 21 tons of gold this year, marking ten consecutive months of purchases.

And it’s not just China. It’s all over the world— Poland, Turkey, Czech Republic, Kazakhstan and many other countries are buying literal tons of gold.

In fact, 95% of central bank reserve managers said they expect global official gold holdings to increase over the next 12 months, according to the 2025 World Gold Council Central Bank Gold Reserves Survey.

There are, however, short-term price risks. For example, the gold price is also impacted by demand for jewelry, as well as industrial use.

Given current record-high prices, jewelry demand is much weaker.

And that can have an adverse impact on gold prices.

Another factor to consider is supply. At a certain point, mining companies are going to take advantage of these high prices and ratchet up production, eventually resulting in oversupply in the market. That, too, could weigh on gold prices.

But we think these are shorter-term factors that don’t change anything about the long-term driver of gold prices—and that is central bank demand.

What we are seeing literally today— government shutdowns and $1.8 trillion deficits—just underscores how widespread that central bank demand is—and why it simply isn’t going away.

PS: While gold has hit all time highs, the share prices of many top quality gold producers has lagged far behind. That is starting to change, but there is still opportunity before the gap closes.

Click here to learn more about the undervalued precious medals producers we have found for subscribers of The 4th Pillar investment research newsletter—we’re currently offering a limited time discount.

Source

Sovereign Man provides actionable intelligence and rational solutions for personal liberty and financial prosperity. Read more at www.sovereignman.com

Source: https://www.schiffsovereign.com/trends/shutdown-or-not-government-dysfunction-higher-gold-prices-153626/