Why Gold May Be on The Cusp of Another Major Bull Market
The comments below are an edited and abridged synopsis of an article by Jesse Felder
Last week, the Treasury Department revealed that the US federal deficit hit $1.1 trillion in the first half of the fiscal year; that’s $432 billion more than the same period last year. Most of this expansion came in March, as spending rose 36% year-over-year (partly due to rapidly rising interest costs). Longer term, there is a widening trend that began in 2015 that has resumed after some pandemic-inspired gyrations. This deteriorating fiscal trend should represent a bearish influence for the US dollar in the future.
The best protection against a deteriorating fiscal situation (guaranteed by rapidly growing Social Security and Medicare spending) is gold. The last time the deficit reversed from a narrowing trend and began a major widening trend, in the early 2000s, it coincided with a major top in the dollar index that evolved into a major bear market for the greenback, which lasted roughly a decade. This was one of the primary catalysts for a major bull market in gold, which rose from a low of $250 in 2001 to a high of nearly $2,000 a decade later.
Currently, investors have little interest in owning gold (a bullish contrarian sign in Felder’s book). Assets in gold ETFs are a fraction of those invested in equity ETFs. However, there’s a good chance that the deteriorating fiscal situation will ignite investors’ appetites for precious metals relative to financial assets, just as it did two decades ago. That’s exactly the sort of thing that could power another major bull market for the precious metal.