Gold Eyes Huge Breakout as Politicians Seek Big Rate Cut

As the political battle over inflation and the state of the U.S. economy heats up, gold prices continue to simmer near record highs.

The monetary metal teased breaking above the $2,500 level early in the week before succumbing to some mild selling pressure on Wednesday. As of this Friday morning recording though, gold has popped back up and fetches $2,506 an ounce on the heels of a 2.2% weekly advance and currently sits at an all-time high.

Turning to the white metals, silver is gaining 4.6% this week to bring spot prices to $28.92 an ounce. Platinum is rebounding 3.1% to trade at $965. And finally, palladium is popping 4.3% on the week to come in at $983 per ounce.

Metals markets are likely to continue gaining if the U.S. dollar extends its recent slide versus a basket of foreign currencies. The U.S. Dollar Index has dropped in recent weeks on expectations of Federal Reserve rate cuts.

The central bank remains on course to lower interest rates next month, though Fed watchers are split between whether it will be by 25 basis points or a heftier 50 basis points.

Democrats and mainstream media commentators are trying to push the Fed to go big. They say inflation has come down enough already.

On Wednesday, the Labor Department reported that its Consumer Price Index rose by 2.9% in the past 12 months through July. That’s the first time the CPI has come in below 3% since March 2021.

CNN went so far as to proclaim that "the war on inflation has been won."

But inflation hawks say it’s premature to declare victory over price inflation while official measures continue to run well above the Fed’s own 2% target. They also warn it’s dangerous and naïve to assume rates of consumer price increases will keep decelerating after the Fed starts easing.

Vice President Kamala Harris has this far offered little in the way of policy specifics when it comes to tackling inflation and other key issues. She is reportedly going to call for a federal ban on so-called price gouging by grocery stores.

If Kamala Harris passed Economics 101 in college, then she should know that price controls lead to shortages. They may not affect giant chains such as Walmart that already price items below what their smaller competitors charge. But price controls could surely put local grocery and convenience stores out of business.

In any event, such misguided measures target the symptoms of inflation rather than the root causes. Massive deficit spending by the federal government artificially inflates aggregate demand without a corresponding increase in productivity. It also makes the scale of the Federal Reserve’s implicit promise to prevent the government from defaulting much bigger.

The government cannot pay down its $35 trillion debt and has no intention of ever doing so. At this point it cannot even keep up with the interest payments it owes on the debt without incurring more borrowing. In other words, it is trapped in a cycle of needing an ever-expanding currency supply in order to avert insolvency.

We have so far heard virtually nothing on the campaign trail about how the next President of the United States will deal with these root causes of inflation. Most journalists won’t ask the tough questions. And even if they did, they’d likely get word salads and empty platitudes in response.

Politicians may try to avoid facing reality, but the extent to which their policies cause the currency to depreciate will ultimately be reflected in the real world. That includes prices for groceries and the price of real money itself – that being, of course, gold.

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