Market Volatility Skyrocketing, Trump and Pelosi Spar

Precious metals markets are off to a strong start in 2019. Gold and silver both closed Thursday at multi-month highs as the stock market reversed sharply to the downside.

Investors were disappointed by manufacturing data showing a slowdown in industrial output. They dumped economically sensitive stocks and bid the U.S. dollar lower on foreign currency exchanges. Markets now expect the Federal Reserve to pause its rate hiking campaign and possibly even begin cutting rates later this year.

The weaker dollar helped boost crude oil and precious metals prices. The energy and mining sectors are among the only gainers in the stock market. The HUI gold miners index closed at a 5-month high on Thursday.

As for gold itself, it’s down a bit today with spot prices currently coming in at $1,284 per ounce, now up a mere 0.1% this week. The physical gold market is likely to tighten this year. Analysts at Refinitiv GFMS project gold mining output will decrease slightly – from approximately 3,282 tonnes in 2018 to 3,266 tonnes in 2019.

Physical silver could also see pressure from diminished mining capacity and rising investment demand as prices recover and attract more mainstream attention. Silver shows a gain of 1.9% this week to trade at $15.72 as of this Friday morning recording.

Platinum is up 2.6% to $817 an ounce. And finally, palladium continues to stay hot after putting in a record breaking 2018. It’s having a great day so far today and is now up 3.9% in the first week of trading of 2019 to come in at $1,308.

Well, as if investors didn’t already have enough to worry about, on Thursday Nancy Pelosi was sworn in as the new Speaker of the House. Of course, there’s nothing “new” about Nancy Pelosi or her ideas. She has been representing San Francisco and its values in Congress for over three decades.

What is new is the growing contingent of avowed socialists within her ranks who are pushing her to endorse Medicare for all, “green” jobs for the politically connected, and a long list of other giveaways…plus the impeachment of Donald Trump and amnesty for illegal aliens.

Speaker Pelosi’s first task will be more mundane – find a way to get the government reopened. She is in the difficult position of trying to negotiate a deal that will be acceptable to her left flank as well as President Trump.

No such deal appears to be forthcoming anytime soon as both sides dig in for a fight. For his part, President Trump graciously reached out to the new Speaker and struck an optimistic tone. But Speaker Pelosi doesn’t appear willing to give Trump anything for his signature issue of a border wall.

Donald Trump: I just want to start off by congratulating Nancy Pelosi on being elected speaker of the house. It's a very, very great achievement, and hopefully we're going to work together and we're going to get lots of things done, like infrastructure, and so much more. I know they want to do that very badly, so do I. So, hopefully we're going to have a lot of things that we can get done together, and I think it's actually going to work out. I think it'll be a little bit different than a lot of people are thinking.

CBS Reporter: Are you willing to come up and give him some of this money for the wall?

Nancy Pelosi: No.

CBS Reporter: Because apparently that's the sticking point.

Nancy Pelosi: No, nothing for the wall. No, how many more times can we say no? Nothing for the wall.

In the strange political spectacle that is the government shutdown fight, neither side actually cares about the $5 billion President Trump wants for border security. It’s not about the money.

If fiscal responsibility were the issue, Democrats and Republicans wouldn’t be talking about a massive bipartisan infrastructure bill. The government wouldn’t be set to spend $4.4 trillion in the current fiscal year. The government wouldn’t be set to run a budget deficit of $1 trillion. Adding or subtracting $5 billion for a wall or a see-through fence of the sort that Democrats supported under previous administrations changes nothing about the dangerous fiscal trajectory of the country.

A reckoning is coming. Maybe not in 2019. But almost certainly by the mid 2020s, some kind of funding crisis will hit. It will make both sides wish it was artificial political theater like the current shutdown is.

In a few short years, waves of retiring Baby Boomers will drain Medicare and Social Security. The programs will require a massive multi-trillion dollar bailout. But the government will likely be running routine annual budget deficits of over $1 trillion. It will be carrying a growing debt-to-GDP ratio spiraling toward third world levels that historically trigger default or hyperinflation.

Under our fiat monetary system, though, a debt default is entirely avoidable. That’s the good news for politicians. The bad news for the rest of us is that when the Federal Reserve’s printing press becomes fully engaged to monetize U.S. debt, the value of the dollar will continue to fall against tangible assets. The prices for everything we buy will skyrocket even faster.

Such a scenario may still be a few years away. But it is difficult to see how it could ultimately be avoided.

Before the debt crisis turns into a currency crisis, precious metals markets will reflect the gathering threats. There are already enough threats from a gyrating stock market, a dysfunctional political system, and an unconstrained monetary system to potentially help make 2019 a big year in the gold and silver markets.