Will A Fiscal Revolution Raise Gold To The Throne?

Revolution, baby! There is growing acceptance for an aggressive fiscal policy, which could be supportive for gold prices from the fundamental, long-term point of view.

We live in turbulent times. The pandemic is still raging and will most likely have lost lasting effects on our society. But a revolution is also happening right before our eyes. And I don’t mean another storming of the U.S. Capitol or the clash of individual investors with big fish on Wall Street. I have in mind something less spectacular but potentially more influential: a macroeconomic revolution.

I refer here to the growing acceptance of easy fiscal policy. In the aftermath of the Great Recession, the central banks adopted an aggressive monetary policy, slashing interest rates to almost zero and introducing quantitative easing. It has become a new norm since then.

But fiscal policy was another kettle of fish. Although almost nobody cared about balanced government budgets, people at least pretended to worry about overly large fiscal deficits and an overly quick accumulation of public debt. For example, while Obama wanted $1.8 trillion in fiscal stimulus in a response to the global financial crisis of 2007-09, Congress passed a package of about $800 billion, as Republicans opposed larger spending. But in March 2020, Congress passed the CARES act worth about $2 trillion (and additional significant stimulus in December 2020), with the full support of Republicans.

Even Germany – the country famous for its fiscal conservatism – ran a fiscal deficit in 2020 and – what’s more – agreed to issue bonds jointly with other EU countries, although it was previously a taboo. The International Monetary Fund (IMF), another bastion of economic orthodoxy, which advocated for austerity and balanced budgets for years, gave up during the epidemic and started to call for more fiscal stimulus to fight the economic crisis.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does ...

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