Gold (COMEX: GC=F) rose to a new all-time high on Friday, March 1, 2024, rising above $2080, marking the second consecutive week it has registered gains.
According to Michael Hartnett, a securities analyst at Bank of America, the rise was driven by the weakening US dollar, lower Treasury yields, and softening economic data. In his weekly commentary, Hartnett pointed out that the U.S. is piling on $1 trillion to its national debt every 100 days, and the total is expected to exceed $35 trillion by April 2024.
The total U.S. debt surpassed $34 trillion on January 4 after briefly hitting the same figure in late December 2023. It follows the rise to $33 trillion in September 2023 and $32 trillion in June 2023, a dangerous pace of accumulation. Additionally, the federal debt-to-GDP ratio now stands at a staggering 123.47%, with the public debt-to-GDP ratio at 90.95%.
The US government also appears to be spending extensively on military and overseas conflicts. Defense and military aid funding has cost 9.3% of GDP over the past four years, per Bank of America. This trajectory is sounding alarm bells for some market watchers.
Surging Popularity of “Debt Debasement” Hedges
Cryptocurrencies and precious metals have been increasingly seen as hedges against currency devaluation and economic uncertainty. As of March 4, 2024, Bitcoin reached over $63,000, marking its highest price since November 2021. In the past week alone, Bitcoin has seen gains of over 23%, showcasing remarkable short- and long-term growth. The enthusiasm around Bitcoin has been attributed to factors like the approval of spot ETFs and the upcoming halving event.
Gold Price Skyrockets
Meanwhile, gold prices held steady after reaching record highs around $2,081 on Friday. Gold saw a 2.22% increase over the past week and an 8.05% rise in the last six months. Year-to-date, gold prices are up 0.87%, while the 12-month increase is 13.36%. Analysts suggest upcoming U.S. economic data could further boost gold prices if the results disappoint expectations.
Silver prices have been more mixed but are still up over 10% from a year ago. Front-month Comex Silver was priced around $23, down 0.53% on the day. Over the past week, silver edged up 1.17%, though it was down 2.64% over six months. Silver remains over 15% above its 52-week low but is around 12% off its 52-week high.
U.S. Debt Crisis Looms Over Global Financial Markets
According to Joao Gomes, a finance professor at the prestigious Wharton Business School, the mounting debt crisis in the United States could trigger turmoil in global financial markets as early as 2025.
In recent months, numerous analysts have sounded alarms over the breakneck pace of borrowing, warning that it threatens to undermine the attractiveness of U.S. government bonds. As the supply of these bonds continues to surge, it becomes increasingly difficult for the market to absorb them.
Furthermore, the high interest rates make servicing the debt an ever more costly endeavor. This “devaluation” of the U.S. Treasury, which constitutes the largest and most liquid market worldwide, could impede the government’s ability to secure funding as potential buyers dwindle. Projections indicate that within the next five years, the U.S. might allocate more resources toward debt interest payments than its defense expenditures.
Rating Agency Outlook Underscores Urgent Reform Need
Moody’s Investors Service has negatively revised its outlook on the U.S. government, citing concerns over fiscal resilience. The credit rating agency has underscored the necessity for effective fiscal policies, such as reducing expenditures or increasing revenues, to address the persistently substantial fiscal deficits. Failure to implement such measures could weaken the country’s capacity to manage its debt obligations effectively.
Partial Shutdown Looms Absent Budget Deal
Markets are increasingly concerned that policymakers continue debating budget cuts while the national debt swells. Another partial government shutdown could occur in March absent agreements, an outcome economists warn would be economically devastating.
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