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Tuesday, April 23, 2024

Congress Has One Week to Approve Spending… or Closures Begin

(Mike Gleason, Money Metals News Service) As another potential government shutdown looms, precious metals markets continue to consolidate.

Although big price breakouts in gold and silver aren’t materializing quite yet, bulls are seeing some signs of gathering strength in the metals space. Gold has successfully tested the $2,000 level multiple times in recent weeks. Silver has held support at $22 an ounce. And the beaten-down platinum and palladium markets have recently rallied off their lows.

Neither metals markets nor financial markets are reflecting much concern about the upcoming deadline to avoid a partial government shutdown. Congress will need to put together a bill to fund the government by next Friday. If no agreement is reached, some federal agencies will be temporarily closed.   

For the average American, life will appear to go on as normal. One side or the other in the budget standoff will inevitably capitulate.

But when Washington, D.C. gets back to “normal” it means continuing the reckless deficit spending. Newly installed House speaker Mike Johnson has already shown a willingness to cut deals with Democrats that contain no meaningful curbs on spending.

It’s not government shutdowns that risk the country’s creditworthiness and the credibility of its currency. It’s the schemes to keep funding the government at unsustainable levels that do.

Even Federal Reserve chairman Jerome Powell has stated that federal finances are on an unsustainable path. But he doesn’t seem willing to do anything about it. In fact, it’s the Fed’s longstanding practice of suppressing interest rates and its implicit promise to buy government bonds in unlimited quantities whenever necessary that have enabled politicians to shirk fiscal responsibility.

While unsound fiscal policy reigns on Capitol Hill, the sound money movement is making gains in state capitals across the country. Most recently, the Wisconsin Assembly voted overwhelmingly to end sales taxes on purchases of gold and silver.

If the bill is signed into law, Wisconsin will join 43 other U.S. states that already exempt bullion products from sales taxes.

Financial products such as stocks and bonds aren’t slapped with sales taxes in Wisconsin or elsewhere. But seven states remain that unfairly punish investors who opt to diversify their wealth into precious metals.

Sound money advocates hope the strong bipartisan support they garnered in Wisconsin for sales tax repeal will help pave the way for tax-free bullion purchases in all 50 states.

Wisconsin is one of a few swing states that will determine the outcome of the upcoming presidential election. Whether vulnerable 80-year-old incumbent Joe Biden is re-elected could hinge on how voters feel about the economy.

The Biden administration aims to forestall a recession at all costs. And it’s quite possible that a recession according to official government statistics won’t be declared at all this year.

Democrat partisans and Wall Street cheerleaders are touting a so-called “Goldilocks” economy where demand cools enough to bring down inflation but not enough to cause an economic contraction.

It may be Goldilocks for those who get a government paycheck or benefit from a pumped-up stock market. But for millions of ordinary working families, they feel their standards of living falling – regardless of what the latest fishy GDP report shows.

Just one in 7 Americans say they’re better off since Joe Biden assumed office.

That number would be even smaller if not for the stock market defying gravity and making new highs. But the latest incarnation of the big tech bubble, fueled by hype over artificial intelligence, is at risk of bursting at any time.

That would be bad news for Joe Biden if it happens between now and the election. But it could be good news for gold bugs. Precious metals markets in recent months have lacked a catalyst to generate buying interest from investors.

When they see evidence that all is not well in the economy and stock market, then safe havens such as gold and silver will command more attention.

The election itself could also serve as a catalyst for bullion buying. The U.S. risks descending into political instability and social unrest if the outcome isn’t perceived to be freely and fairly decided.  The days of the loser graciously conceding defeat to the winner and wishing him success may be over.

And the days of the U.S. dollar serving as the world’s reserve currency may also be coming to an end. Foreign central banks and governments are wary of financing ballooning U.S. debt. They are increasing their gold holdings in response.

The question is when more individual investors will as well.

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