As inflation comes in hotter than expected and the federal deficit comes in higher than ever, investors face rising risks in financial markets.
On Thursday, the Labor Department reported that the Consumer Price Index for December rose by 0.3%. That was a bigger increase than forecasted. It represents an annual rate of 3.4%.
Rising food, energy, and shelter costs contributed to the CPI’s jump. Since the index doesn’t fully capture these components, millions of households are experiencing cost of living increases that are much higher than what’s reported officially.
The Federal Reserve obviously cannot now claim victory over inflation. Not with their stated 2% target still nowhere in sight. And certainly not with inflation now threatening to accelerate.
Fed Chairman Jerome Powell had struck a dovish tone last month, leading to widespread expectations of a pivot toward rate cuts by March.
This week’s CPI report could dissuade policymakers from shifting toward easing. But not necessarily.
Regardless of whether the economy needs lower interest rates, the world’s biggest debtor does. The U.S. government is struggling to service its rapidly expanding debt load.
On Thursday, the Treasury Department reported that the federal budget deficit widened in December to more than $129 billion for that month alone. That’s up from $85 billion in December 2022.
The current fiscal year which began in October is on pace to produce a record annual deficit. The three months so far of accumulated red ink total $510 billion, up from $421 billion in the same period of the previous fiscal year.
Fiscal conservatives are demanding that Congress hit the brakes on spending. But Speaker of the House Mike Johnson is moving forward with a Democrat-backed budget deal that would increase outlays and do nothing to shrink the deficit.
Critics accuse Johnson of capitulating on spending in the same way that his predecessor Kevin McCarthy did. The more things change in Washington, the more they stay the same.
Republicans may have a majority in the House of Representatives. But advocates of fiscal restraint, balanced budgets, and sound money are a small minority on Capitol Hill.
Fiscal recklessness will weigh over time on the creditworthiness of the U.S. government and the value of the U.S. dollar. In such an environment, gold and silver stand to shine as safe havens.
But for now, precious metals markets are taking a back seat to the stock market. The S&P 500 traded at a record high this week.
Meanwhile, gold prices drifted lower through Thursday’s close. But the monetary metal is getting a bump here today and currently checks in at $2,064 an ounce – now showing a slight 0.4% gain for the week. Silver is lagging and is off 3.7% on the week to trade at $23.50 per ounce. Platinum is giving up 4.3% to come in at $932. And finally, the palladium market is posting a weekly loss of 4.6% to come in at $1,016 per ounce as of this Friday morning recording.
Metals markets are losing momentum in the early goings of 2024. But their underlying fundamentals are strengthening. They face supply shortfalls and have the potential to garner massive safe-haven buying when confidence in stocks, bonds, and fiat dollars turns down.
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. And don’t forget to tune in every Wednesday now for our newly launched second podcast each week, the Money Metals Midweek Memo.
I hope you’ll tune in to that to hear some great commentary from my colleague Mike Maharrey, who has already been a fantastic addition to our Money Metals family. I strongly encourage you to check out Mike’s podcast each week, just go to MoneyMetals.com or find that on whatever podcast platform you prefer.
Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a wonderful weekend everybody.
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