A little over a week ago, Federal Reserve Chairman Jerome Powell indicated America could be entering a climate that sees interest rates fall in the coming months. Just last year, Powell suggested the economy looked so strong all we could see for miles was blue skies and higher interest rates. Sure enough, 2018 saw interest rates hiked four times by America’s central bank.
That has now all changed. At Augusta, we’ve been detailing for some time how the real economy is much weaker than the impression given by a few select indicators, and it appears the Federal Reserve now finally agrees.
The recent announcement that rates could be going lower – and weakening the dollar – sent gold soaring. Notably, gold finally burst through what had been a longstanding level of price resistance – $1,350 an ounce. For the last five-plus years, gold had been unable to meaningfully pass upward through $1,350, but that all changed last week. Not only did gold smash through that established barrier but it surged well past $1,400 an ounce, where it remains presently. In the wake of this recent flurry of positive activity, a variety of experts are expecting the metal to move considerably higher from here.
Gold investors are obviously thrilled at the metal’s current run. The bigger issue, though, is what’s going on in the economy at large that suggests gold could be a particularly important asset to own going forward. One former Treasury secretary sees the profound weakness of the country’s financial infrastructure as the “diminishing American economy.” Is it possible we are on the cusp of not only a new bull market for gold but the advent of gold as an asset every bit as viable in the mainstream as others?
Former Treasury Secretary: Misleading Data Hides Truth About Fragile Economy
Economist Paul Craig Roberts does not mince words about this. He is the one who declared that citizens are now hopelessly mired in what he terms a “diminishing American economy.” The one-time Assistant Secretary of the Treasury for Economic Policy opens his most recent blog article this way:
“Since June 2009 Americans have lived in the false reality of a recovered economy. Various fake news and manipulated statistics have been used to create this false impression. However, indicators that really count have not supported the false picture and were ignored.”
That hardly seems a ringing endorsement of the robustness we’re told characterizes the U.S. economy these days.
At the top of Roberts’ list of “fake news and manipulated statistics” are reports that pertain to the unemployment rate. He points out that, in economies where there’s genuine recovery (expansion), more people, not fewer, become part of the labor force. And yet, as Roberts also notes, the percentage of Americans either working or actively seeking work, known officially as the labor force participation rate (LFPR), fell from 65.7% to 62.8% from June 2009 through May 2019.
The unemployment rate you generally hear quoted on the news is called the “U3 unemployment rate.” It does not take into account those workers who are “discouraged” in the short-term as well as underemployed. Throw those unfortunate souls into the mix and you have the U6 unemployment figure, which is almost never referenced publicly. Generally regarded as a more reliable unemployment measure, Roberts says U6 unemployment is slightly over 7%, which makes it double the “official” 3.5% U3 unemployment rate.
To help make his case, Roberts cites the revealing work of John Williams of Shadow Government Statistics, a website devoted to “exposing and analyzing flaws in current U.S. government economic data and reporting.” Part of the data Williams accumulates is used to produce an unemployment rate that also includes the long-term discouraged. According to Roberts, Williams pegs that number at a striking 21%.
A deceiving unemployment rate may sit at the top of Robert’s list of sham figures, but it’s not the only rate that misinforms the public. Roberts takes issue with a host of other rates, including the rate of real retail sales growth. Even at a diminished rate of 1.3%, Roberts says the number is an “overstatement” because of the way measurements of inflation, such as the consumer price index, have been modified to give the appearance inflation is less of a problem than it really is. Citing an assessment from Pew Research, Roberts notes it’s not possible for retail sales to genuinely increase when “for most U.S. workers, real wages have barely budged in decades.”
Analyst: Central Banks’ “Money Accelerator” Could Fuel 10-Plus Years of Gold Growth
Roberts’ grim assessment suggests the American economy will be chronically weak for a long time, which sets the stage for a great deal of possible Federal Reserve intervention for years to come. In a recent Forbes article, technical analyst Bert Dohmen identifies a bright future for gold over the next 10-plus years due as much to the dangerous financial straits he sees the American economy heading into as to a bevy of ideal technical indicators.
More specifically, Dohmen says he views gold and silver’s primary benefits not as hedges against crises per se but against the inflation that invariably ensues when crises lead to the application of drastic monetary measures.
Dohmen noted that “crises cause the central banks to step on the monetary accelerator, which then makes gold a great investment,” and he said what truly creates a bull market in gold is its utility as a hedge against “actual inflation or the perception of future inflation, as currencies are debased by governments that can’t pay their bills.”
And governments without real growth, as exemplified by what Roberts calls a “diminishing American economy,” cannot pay their bills in a manner rooted in soundness. This is why it is possible that the bias toward lower interest rates, after 10 years of unprecedented levels of stimulus, signals a new paradigm in American economic policy – a paradigm that could prove beneficial for gold in the years to come.
Gold Poised to Thrive in New Era of Economic Weakness
As mentioned earlier in this piece, now that gold has moved sharply to the upside, a variety of experts are calling for the metal to move considerably higher from here. Those experts include mainstream financial institutions as well as high-profile investors and analysts. For example, Citigroup has gone on the record to say it believes gold could reach $1,600 an ounce in the next 12 months, while hedge fund giant Paul Tudor Jones sees $1,700-an-ounce gold as the next stop now that the $1,400 threshold has been breached.
These predictions look only to the near term. They are not rooted in the idea that gold could be the recipient of a beneficial economic environment for a long time to come. But given the struggles of not only the domestic economy but the global economy after a decade of quantitative easing, courtesy of central banks, it’s worth pondering if gold could become a true mainstream asset as the millennium marches on.
If you own gold presently, you’re obviously pleased to see both the recent jump in price as well as the expectation of more to come. But the bigger news is that a significant change in America’s economic outlook as alluded to by Paul Craig Roberts and so many others could further enhance gold’s existing potential. If you’re ready to learn more about gold and silver and how they are used to serve long-term financial goals, call Augusta Precious Metals at 800-700-1008 to speak with one of our knowledgeable gold and silver professionals. Also, to find out how you can purchase your physical gold and silver inside of a tax-advantaged IRA, ask the Augusta team member you speak with about that, as well.