Goldman Sachs Is Worried About The Federal Reserve Note

As July comes to a close, gold is up better than 9% for the month and has advanced nearly 30% for the year.

Gold’s record-setting rise has been driven by Federal Reserve stimulus, dollar weakness, and strong safe-haven investment demand. Even the Wall Street-centric financial media is taking note:

Financial News Anchor #1: Gold is shining once again, this morning. The spot price is touching all-time highs, as the dollar index sits around a two-year low.

Financial News Anchor #2: Those gold prices have hit an all-time high. The spot price of gold reaching a record.

Gold traditionally surges in times of turmoil. In this case, the economic impact of the pandemic, and those US/China tensions. They are sending investors to this safe haven. But the Federal Reserve's monetary easing measures, they also have a part to play in the price of gold.

The Federal Reserve on Wednesday left its benchmark interest rate unchanged near zero. But rates are actually going down in real terms as inflation threatens to come roaring back. That’s a hugely bullish factor for precious metals.

On the other hand, deflationary pressures could quickly return if the Fed lets up on the monetary gas. The GDP report on Thursday showed the nation’s gross domestic product contracted in the second quarter at an unprecedented annual rate of 32.9%. The collapse in economic output was offset by a surge in fiscal stimulus that caused personal incomes to actually grow overall.

Additional stimulus checks from Uncle Sam are likely coming soon. At least another $1 trillion will be added to the budget deficit, which is already the largest in history. But during a pandemic and in an election year, deficits don’t matter – at least not to members of Congress.

But deficits do ultimately matter to taxpayers and holders of U.S. dollars. The currency is being rapidly inflated to cover ever-widening gaps between what the government spends and what it collects in revenue.

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William K. 1 month ago Member's comment

So now it seems that those with better credentials than mine are also concerned about debt and inflation. Thus either I was correct or we are both wrong, and things may get interesting, not in a good way, though.

Gold itself is not the driver but rather the alternative stable place, which we both understand.. But others are saying that because this is a different situation inflation will not be an issue. The logic offered in that concept also makes some sense.

Whatever happens next may even be exciting, although I certainly hope not. Financial excitement is seldom over good news.