November 22, 2024 – Well, today we're going to provide a quick update on gold, the U.S. dollar, and some of the big macro trends that we at Financial Sense Wealth Management are closely watching when it comes to navigating the current market. Joining us on our Smart Macro segment for the Financial Sense Newshour is our Chief Investment Officer, Chris Puplava.
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Cris Sheridan:
So, Chris, we've talked with you in the past about gold, and right now a lot of the focus is of course on bitcoin. On the day that you and I are speaking, it is Friday, November 22nd. Bitcoin is currently trading at $99,450, ever closer to that $100,000 price target. A lot of attention of course, on that. With the discussion around a strategic bitcoin reserve, we'll have to see how that plays out. But let's talk about gold here for a moment because we just spoke with Jeff Christian on FS Insider this week to get an update from him. And you know, he's been calling for this new bull market in precious metals over the 2023-2025 time period. Of course, we have seen that, but gold did see a bit of a sell-off just as it looked like it was getting to $3,000. He still thinks that the bull market is in play for precious metals and thinks that we will see higher highs around next year and even into 2026. But what are your thoughts on what is still the number one largest held asset in the world, which is gold?
Chris Puplava:
Well, Chris, I think a little bit about this was some profit-taking. You know, when we look at the futures positioning by not the commercials but the non-commercials (see chart below), they were probably the most long they've been in well over a decade. So I think it was more just a positioning thing, Chris, and people taking some profits, which is healthy in a bull market.
You don't want it to go straight up and then blow up. So having these pullbacks is good, it is healthy. But I think it just got a little too long in the tooth as far as sentiment, a little too bullish. Whether you're looking at futures, options markets, even when you look at the retail ETF flows into gold and silver ETFs, I was noticing that we had seen outflows from the gold ETFs ever since 2020, that bottom this summer which we noted on prior podcasts. But I did see a bit of a pullback in total gold ETF holdings, you know, roughly since I'd say late October. So really over the last I'd say about a month. So I think some of it's profit-taking, seeing some covering, or you know, selling some profits on long contracts in the futures market, covering some options trades, and also just taking some general profits in the gold ETF. So to me, I think it's more profit-taking and kind of normalizing sentiment, which is healthy. And that's why I, I do not believe that this is any major top because I don't see any change in the fundamental catalyst for gold. One of the charts that I've shown clients in the past is just looking at gold relative to debt to GDP (see chart), and there's a pretty strong correlation there.
I don't think debt to GDP is going to be worked down. I know that the Department of Government Efficiency headed up by Elon and Vivek, well, you know, they're looking at cutting costs, but there's really only so much you can cut. I mean most of it is non-discretionary, so I don't know how impactful they will be. And as strong and as mighty as they are, there's no one mightier than the demographic of the baby boomers. I mean that is the 800-pound gorilla that is just simply, there's really nothing you can do. I mean it's, you know, it's demographics, and it's, it's on the books. I mean, you can just clearly see the surge that we're going to see in entitlement spending. And I think that's ultimately what gold is predicting is that in the US, I think we're going to have to at some point. I don't know if it's next year, two, three years out, but at some point, I think we're going to have to be faced with the Japanese decision. Do you do nothing and let your record debt issuance drive your interest rates higher, crushing your economy and keep your currency strong? Or do you sacrifice your currency to save your bond market by doing yield curve control? So that's what I think we're going to have to come to grips with. And what we've seen time and time again is that governments have chosen to devalue their currency rather than let their bond markets collapse. And I think that's why the bull market for gold is still strong and alive and well. There'll be periodic corrections along the way. But I think the other part too is we've seen a huge surge in the dollar. And a lot of that, in my opinion, was just simply that the number of rate cuts priced in by the market going into 2022 were just too high. I think we're looking at something around eight rate cuts with the terminal rate around three percent by next December. And now the markets are looking at a terminal rate for the Fed funds at about four percent. So we have lost in the last two months or so, four rate cuts are now off the table according to the markets. So that's definitely strengthened the dollar and that's put some pressure on gold. But I took a look recently, you know, gold has snapped back pretty aggressively, more than I would have thought, but it's back to a sea of green. You know, it was one of the podcasts we gave, I think a month ago, was just a sea of green. When I look at gold's performance against world currencies, you know, from one day out to one year today, for example, gold is up against every currency. It's up against every currency on a five-day basis. It's only where I'm looking at it on the last month where there's a few currencies where it's down slightly, but most of them, it's, you know, it's rallied pretty significantly, and it does kind of give some strength that the bottom could be in. I, I thought we might be more in a holding pattern for gold, you know, kind of like an ABC correction, down, up, down, and then bottom in December and then, you know, advance going into next year. But this is a pretty strong move. And I, I think part of it too, Chris, is the fact that gold is rallying as well as seeing a strong dollar. This could be a little bit of a risk-off with the escalation with Russia and Ukraine, with launching ICBM missiles. And I think that, you know, there could be a little bit of geopolitical risk there, not seeing the same bounce in silver. And the fact that the dollar is also rising kind of, I think leads to that. So that's maybe some short-term strength in gold. Absent the escalation with Russia, I still think we're in a cooling-off period. I mean, we had a hell of a run just since the summer, and it would not surprise me at all to see gold kind of cool off and trade sideways for, you know, another month before advancing again. But by no stretch of the imagination do I think the bull market in gold is over.
Cris Sheridan:
Yeah. And I think one of the big points there, and I encourage all of you listening to check out this chart that we're going to have posted along with this interview on Financial Sense. But big picture here, when you think about the outlook for gold long term, I mean, it's got a really, really close correlation to US Debt to GDP, as you pointed out, unless you think that US Debt to GDP is going to be falling, the outlook for gold is still higher. And I think one of the big points that you touched upon there is the fact that, you know, 60 to 70 percent of mandated spending by the US government is on entitlements. Unless they're going to take on some major reforms in that area, it's very unlikely that we're going to see US Debt to GDP fall. So as long as that ratio keeps climbing, as you can see from this chart, that is going to be a tailwind for higher gold.
Chris Puplava:
You look at just the surging amount of debt that we have in this country. I mean, we're now annualizing interest payments of $1.1 trillion (see chart). And you look at the chart of interest payments, I mean, it looks like the chart of gold, it's just going exponential.
And you know, the concern that I have next year is that if the economy does recover and turn around while the Fed is cutting short-term rates, that doesn't mean long-term rates are going to come down. And that could continue to further the interest expense on the US Budget, which means the higher, the more we're paying in interest expense, the more we're going to be running a deficit and having to issue even further debt. So it's just kind of this positive feedback loop in a negative way where, you know, the more debt we have, the higher interest rates go, the more interest payments we're paying, and issuing more debt because we're not bringing in enough tax receipts to finance our expenditures.
Cris Sheridan:
Yeah, and for any of you listening before you think that we're just invested all in gold and, you know, it's doom and gloom, that's not the case. We believe that gold, precious metals, commodities, even bitcoin, all have a place in a diversified portfolio, which is what we're doing here at Financial Sense Wealth Management with our clients. But we have been talking about the likelihood for higher precious metal prices since 2020, when we began increasing our allocation to that based on the idea that we would see higher inflation and certainly higher than average inflation than what we saw over the prior decade. And that has played out very well. And we don't think that that trend is over, as you've discussed with us many times on the past. Chris, let's touch on the market here for a little bit because we did just speak with Mish Schneider at Market Gauge in our first segment (see Mish Schneider on Broadening Rally, Retail Breaking Out). She said she's excited about what she's seeing. I mean, basically the big picture message from her was that technically speaking, the market rally is broadening out to other sectors. It's not just in tech. We're seeing it now in small caps, in retail. And for her, that is a really good sign.
Chris Puplava:
I would say the same, Chris. I'm definitely seeing some broad-based strength in multiple sectors. It's not just tech, and it's not just large-cap tech, in particular. I'm seeing it broadening in other areas. Healthcare obviously took a beating with Trump getting in, with RFK, make America healthy again. But one area that I think does look interesting and could be shaping up is energy, particularly if you look at natural gas. Natural gas prices look like they're breaking out. And I think part of that again is a little bit of a Trump trade, where Biden basically capped any further LNG export capacity. I think Trump's going to reverse that and increase capacity. So the problem with not having greater capacity is that creates more of a bottleneck with excess supply of natural gas here when we could be exporting our excess supply and capturing higher-priced markets abroad, particularly in Europe. So I think that's what is moving natural gas. Plus we're getting into the winter heating season. So energy, to me, looks interesting right here. If that can start to move the needle again, that's just another sector moving forward in addition to tech. Tech, I think, will continue to do well. But overall, I do see that broadening now, particularly in other sectors and in other market caps. Whether it's not just large cap, I'm seeing some pretty good strength in the mid-caps and small caps as well.
Cris Sheridan:
As we spoke with you just after the election, you had mentioned the fact that we had moved a bit more aggressive in our client accounts given the positive signs that we were seeing. Of course, a lot of talk about the pro-growth, pro-business, low-tax environment under a Trump administration that we may see over the next four years. One thing that we also discussed is the likelihood of seeing a big pop in small business sentiment. Of course, they tend to lean conservative, and we did see a big pop in small business sentiment after Trump's 2016 election. Where do things stand today in terms of what we're doing here in our accounts, in the level of aggressiveness in the market? And what are some of the things that you're going to be keeping on your radar in the weeks and months ahead?
Chris Puplava:
Well, like your prior guest, I do think the market remains strong. It's in a strong seasonal period. There's a lot of euphoria regarding the Trump victory for the White House, and I do think we're going to keep heading higher. The S&P is currently at just under 6,000. Honestly, I believe we'll probably be over 6,000 in the next few days here. What I was looking for was small-caps and mid-caps, which did have a decent pullback. They've recovered, they held their support, and they're now advancing again. So now that you've got small-caps, mid-caps, which are riskier than large-caps, moving forward, I think it's only time before the large-cap S&P also hits a new all-time high. So I think it's very conceivable that the S&P will continue to rally for the remainder of the month and into December. And historically, from what I've seen, you typically rally into Inauguration Day. So we could be pushing north of 6,000 the first month of next year, possibly up to 6,100 to 6,200. So I see a lot of green, Chris. There's really not a lot of negative things that I see, other than, you know, the proverbial black swan where things could really deteriorate significantly with Russia and Ukraine. That obviously could be a huge factor to weigh on risk assets. But absent that, I think the path of least resistance is clearly up.
Cris Sheridan:
I do want to point out that we spoke with Dr. Ed Yardeni this week on FS Insider. So regarding your comments on the market, Chris, he's risen his forecasts and price targets for the S&P 500. He's been calling for a roaring 2020s bull market this decade, and he reiterated that this week on FS Insider, saying that he's now risen his price target for the S&P 500 next year from 6,000, which he had at the beginning of this year, to now reaching 7,000 by next year. And then he has a price target now for 8,000 to 10,000 by the end of this decade, which would be about 66% higher from where we are today. And a lot of that increase to his forecast is due to the pro-growth policies, including the impact that lowering corporate tax rates would have on earnings, and a number of things which we of course have discussed with you many times in the past. So very interesting things to think about. Obviously, it's not going to happen in a straight-up affair. There will be pullbacks along the way, and some volatility. Need to keep that in mind. But Chris, as we close, of course, we at Financial Sense Wealth Management do provide financial planning and comprehensive asset management services for high net-worth individuals and businesses. What would be the best way for our listeners to get in touch with you to find out more about how we can assist them?
Chris Puplava:
They can reach me at 888-486-3939, or they can shoot me an email at chris[at]puplavafinancial[dot]com, and don't forget, if any of you want to sign up for our free newsletter, where we send out occasional charts, data, and analysis, including the quarterly newsletters written by Chris Puplava and other members of our team, you can always sign up for those financial sense.com.
Cris Sheridan:
Well, Chris, thanks again for joining us on Smart Macro and speaking with us today, getting an update on your outlook, and we look forward to speaking with you in another two weeks.
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