Is Gold’s Runup at All Likely to Slow Down?

As the U.S. dollar bounces back versus foreign currencies, gold and silver markets are showing resilience.

The Dollar Index is moving up sharply in the early goings of October after falling steadily for three months prior.  Currency traders ditched the Japanese yen after Japanese Prime Minister Ishiba suggested the economy can’t handle any additional interest-rate hikes. The yen suffered its biggest drop in more than two years, causing a wave of inflows back into to the U.S. dollar.

Continued weakness in the yen could reignite the so-called carry trade. Opportunistic traders are incentivized to sell or take out short positions against a depreciating yen and use the proceeds to buy other assets, including currencies, bonds, equities, and precious metals.

Of course, the yen carry trade can reverse suddenly at any time and cause sharp drawdowns in the assets that had benefited from it. But analysts at JPMorgan note that a broader “debasement trade” is likely to continue driving global central bank and individual investor demand for gold.

More investors are growing concerned about the risk of all fiat currencies being debased.  They face the prospect of being unable to get enough yield on paper instruments to compensate for that risk. They also seek protection from geopolitical risk as conflict in the Middle East intensifies and the U.S. continues to fund a war against Russia that could even spark a nuclear confrontation.

For these reasons, gold’s run to new records may be far from finished. The monetary metal posted a new all-time weekly closing high last week.  The gold is off a slightly, down 0.5% in this week’s trading however to bring spot prices to $2,654 per ounce.

Turning to silver, bulls are eyeing a potential breakout to new multi-year highs above the $33 level. As of this Friday recording, silver checks in at $32.27 an ounce, up 1.5% for the week.

As for the platinum group metals they are off a little bit this week. Platinum is down 1.2% to trade at $1,001, while palladium is posting a weekly loss of 1.9% to come in at $1,032 per ounce.

Although the PGMs have been struggling to gain traction in 2024, their supply and demand fundamentals are looking better and better.  The World Platinum Investment Council estimates that the physical platinum market will record a deficit of over 1 million ounces this year. Platinum supply is forecast to drop by 1% even as demand increases by 3%. It doesn’t take a Ph.D. in economics to recognize what falling supply combined with rising demand means. It means there will be shortages unless supply rises or demand falls -- or both.

There is one thing that will encourage mines to produce more platinum and industrial users to consume less of it. That one thing is higher prices.

We’ve talked about the silver deficit many times.  Silver demand has outstripped supply for three straight years. The deficit is on pace to grow to over 200 million ounces in 2024, which would be the second highest on record.

Again, the one thing that will push supply and demand back into balance is higher prices.

In other news, the first and likely only Vice Presidential debate took place on Tuesday. Democrat Tim Walz and Republican JD Vance squared off in what turned out to be a surprisingly cordial exchange of ideas.

At one point, CBS News moderator Norah O’Donnel pressed the candidates on the ballooning budget deficit. She cited a study that concluded Kamala Harris’ proposals would increase the deficit by $1.2 trillion and that Donald Trump’s policies would bump it up by even more.

Of course, the Trump campaign disputes this.  But the reality is that neither Trump nor Harris has any sort of plan to actually shrink the deficit. Both Vance and Walz dodged the question of what they would do about it.

It may be the politically smart thing to do. The only way to put federal finances on a sustainable path would be to make massive cuts in spending that is considered mandatory in Washington.

The candidates aren’t going to call for cuts to entitlement benefits that have been promised to millions of people.  They aren’t going to call for cuts to national defense. And they aren’t going to call for the government to default on its bonds. The government currently spends more on interest payments to service its debt, by the way, than it does on defense.

That leaves a relatively small amount of discretionary spending that could be put on the table for cost saving. Trump has talked about getting rid of the Department of Education and defunding Diversity, Equity, and Inclusion offices, among other things.

But as happened so often during his first term, various attempts by Trump to drain the swamp would likely be thwarted by Congress, the courts, and the entrenched deep state bureaucracy. Even if Trump finds ways to more successfully drain the swamp in a second term, he will face an overwhelming abyss of politically untouchable spending.

The national debt will keep rising at a steep trajectory regardless of who wins in November. And in turn, the U.S. dollar will continue to get debased.

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