Inflation Isn’t Likely to Go Away

Gold and silver futures speculators began selling contracts in anticipation of a Trump victory. Thus far, the selling continues after his win.

The markets may have simply been overbought after big moves higher in October. However, the impact of the election cannot be discounted.

The initial sentiment from Americans at large, and precious metals investors in particular, is that change is coming to Washington, DC. Confidence is on the rise, and that means lower demand from buyers looking for a safe haven and inflation hedge.

There may be reason for hope of fiscal reform, but investors will want to temper that emotion with reality. There is a lot of difficult work to be done, and it won’t be completed without plenty of institutional resistance.

The list of presidential appointees, for example, has many buzzing with anticipation. The reality is the Senate confirmation process won’t start for a couple of months. The candidates will get opposition from Senate Democrats and Republicans like Susan Collins and Lisa Murkowski.

Last week, Senate Republicans installed John Thune as Majority Leader. His track record indicates he is more closely aligned with Mitch McConnell – the former majority leader – than with the president-elect.

The number and the power of entrenched interests who will fight reforms in Washington, DC, should not be underestimated.

Likewise, the new administration has its work cut out for it when it comes to subduing the inflationary forces which have been driving metals prices higher in recent years.

The portion of the U.S. budget available for wholesale cuts is called “discretionary spending.” It represents just a small portion of overall spending. It was only 27% of the total federal budget in 2023. It includes:

• National Defense: Approximately $742 billion in 2023
• Nondefense: Approximately $935 billion in 2023 for categories including:
  • Education and workforce development
  • Science and research
  • Infrastructure and transportation
  • Healthcare and social services
  • Law enforcement and public safety

Last year, the U.S. government forked out approximately $1.7 trillion on discretionary spending. How much of that can be eliminated? Even relatively small, proposed cuts will be greeted with angry opposition by special interests and their allies in Congress.

Nobody in Washington, including the president-elect, has announced plans to touch entitlements – Social Security, Medicare, and other government assistance programs.

The trouble is deficits are forecasted at $2 trillion per year for the next 10 years. If Elon Musk and Vivek Ramaswamy, through their newly created Department of Government Efficiency, are able to trim $1 trillion from federal spending, the deficit will still be $1 trillion per year.

The incoming regime is also an advocate for Fed stimulus – lower interest rates and other inflationary monetary policy.

The infamous U.S. Debt Clock isn’t going to start spinning in reverse any time soon. If it is possible to balance the federal budget, some very hard political choices will have to be made. Until then, the Federal Reserve note “dollar” will likely continue to weaken relative to tangible goods, especially gold and silver.

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