The big, beautiful bill’s $3.8 trillion deficit isn’t just fueling national debt – it’s inspiring forecasts for $4,000 gold by the year’s end. With the dollar’s safe-haven status at risk while central banks dedollarize in favor of gold, here’s what’s next…
By Peter Reagan
Your News to Know rounds up the most important stories about precious metals and the overall economy. This week, we’ll cover:
- We’re now committed to adding $3.8 trillion to the national debt…
- …which is why $4,000 gold is the talk of the town
- A British fund manager’s take on gold demand
- This bank is encouraging customers to give up on currency
A $3.8 trillion tax-and-spend package means $4,000 gold, analysts say
Just when you thought things couldn’t get any worse, Washington passed a spending bill that you’re paying for (indirectly). One that adds $3.8 trillion to the national debt.
If this has familiar vibes, it’s with good reason. Despite the difference in political priorities, in terms of its sheer scope, it’s awfully reminiscent of the Bidenomics stimulus that made history for all the wrong reasons and brought us 10% inflation (officially)…
Some obvious questions are arising immediately, some with answers and some without.
Who’s going to pay for this spending package?
Will it result in the same sorts of inflationary pressures as previous tidal waves of federal spending?
How will it affect the typical American family, who’s already struggling to remain middle class?
It might be more accurate to say that typical families are struggling to keep the very idea of a middle class alive.
As for the question of what this will do to our purchasing power, well, that part is clear from history if nothing else…
The national debt will explode, the federal budget deficit continue into more trillions, and so on.
The “big beautiful bill” alone made market participants actively target $4,000 gold price even though we’re currently some 10% below gold’s most recent all-time high at the moment. Predictions of $4,000 gold are now easier to find than ever, which is where we’d like to throw in a few reminders.
First, it was very recently that some were still doubting gold can hit $3,500 or finding it a tail-end, exhausted run target.
Second, the start of Trump’s second term was, for gold investors, marred by a brief dip in gold prices. We were told that the then President-elect was the cause for a gold slump, while we ourselves were correctly pointing out this is nonsense and had no basis in reality.
Quite the opposite, in fact…
Admittedly, even I’ve been a little surprised by how forcefully gold has jumped over the last couple of months…
The FXEmpire analysis above notes how the tariff war is being fought on the domestic front as well:
On Friday, President Donald Trump threatened Apple with 25% tariffs if it fails to relocate iPhone production to the U.S and 50% tariffs on the EU starting June 1st.
Trump wants to move jobs back to the U.S., and also wants to avoid a recession which is concerning many economists and analysts.
As GSC Commodity Intelligence’s analysts put it:
A trade war hits all of Trump’s economic goals in one shot. The Fed won’t cut rates, so Trump’s using tariffs to crash markets and force their hand. It’s not a mistake – its strategy.
Trump’s battles with the Federal Reserve are well-known, making one wonder why the President has to fight his own central bank. (Perhaps because the Fed is actually privately chartered and in some very legally murky waters? A subject for another time, perhaps.)
The problem is that these tariff wars are crashing head-first with our government’s inflationary spending. The big beautiful bill will result in lost purchasing power. That’s obvious. Meanwhile, it might be safe to say that the U.S. debt has never looked less appealing in the last 50 years.
Despite its seeming strength relative to other currencies, might it then be safe to say that the U.S. dollar must, by definition, be in its worst spot in the last 50 years? Investors used to know what to do in a crisis – snap up federal government debt and the dollar. But lately, the U.S. has lost its unquestioned “safe haven” status (as rising rates on federal government debt demonstrate).
When uncertainty about the dollar’s global role rises, so does gold. It will be interesting to see just how soon the price of gold hits $4,000.
Brits blame Chinese demand for rising gold prices
To hear Jim Luke, lead manager of the Schroder ISF Global Gold Fund say it, U.K. investors are a little skittish to buy gold because they’re wondering how much more it can run.
Luke calls it the real, inflation-adjusted high, and finds the notion bizarre.
We have to concur, as we just recently went over Dominic Frisby’s list of reasons to buy and own gold.
The British analyst named “being British” as one of the top reasons, almost ridiculing how badly the pound sterling is faring. (That’s what passes for a British joke, by the way.) And he is right: gold was posting all-time highs in pounds sterling long before U.S. dollar prices caught up.
Luke says that $5,000 gold by the end of the decade didn’t feel outlandish a year ago, but today seems like a lowball prediction. With many targeting $4,000 by year’s end, there’s no questioning that. The breathers between gold’s new all-time highs are getting shorter.
Gold took almost a decade to do something remarkable after 2011, and has now essentially been doing even more remarkable things for five straight years. Today’s run is indeed unlike anything we’ve seen in the last 50 years. That is, unless we take into account a possibility nobody wants to seriously discuss…
The possibility that the U.S. dollar and all other currencies are simply that worthless. Meanwhile, gold’s price is simply showing us just how far this realization has spread.
To Luke, the price of gold is really a story of emerging-market (specifically Chinese) gold demand versus developed-market investors.
As he notes, China has been the dominant driver of prices this year, and all it needs to do is keep up the pace of buying (which is happening on both national and consumer levels).
We could pretend that there is some kind of separation between state and trading platforms, but by now, it feels like everyone knows that any Chinese gold retailer is a PBoC front.
And what is there to be said of Western demand? As Luke points out:
Developed-market investor participation has been very light. It’s higher this year than in 2023 and 2024, when Western investors were actually outright selling, but still very light compared to 2020 or even 2016 and a shadow of the quantum of demand we saw in the last bull market.
As so many have already noted, Western investor demand somehow hasn’t been there despite this historic run. There are some signs that it’s coming in, though, both on the retail investor and fund front.
If it takes off, there is little doubt that gold could catch the $4,000 target as an absolute minimum in the relative near-term.
Bank to award incremental gold for transactions (but the wording is the real prize)
Nigeria’s Alternative Bank, the largest non-interest bank in the country, announced that it will be awarding incremental gold for users of its digital platform.
On its face, this isn’t that different from loyalty rewards offered by many credit card companies (in cash back, in airline miles and so on). When we run the numbers, though, this “bonus” truly fails to impress. A credit of 25 micrograms of gold for every transaction isn’t exactly investment-worthy…
Let’s do the math:
- 1 microgram = 1/1,000,000 gram (one-millionth of a gram)
- 25 micrograms = 0.000025 grams
- Today’s gold price per gram is $107
- 25 micrograms = $0.0027 or approximately one quarter of a penny!
Worse still, this bank’s “gold reward” isn’t paid in gold! (As if the human eye could actually detect 25 micrograms of gold…) Instead, the “bonus gold” has to be redeemed for currency.
Brilliant marketing, right? “Bonus gold” sounds like a fantastic offer! But the real insight comes from Mohammed Yunusa, the bank’s Director of Digital Business and Innovations.
“This is not your typical loyalty programme,” he said.
“We are literally putting real value in the hands of our users, one transfer at a time. The goal is to create a direct, tangible benefit for simple actions people are already doing, sending money.”
In other words, Yunusa is saying that currency isn’t real money – and that gold is. It’s a pretty unusual concession by a financial institution, strongly implying to their customers that “currency isn’t really money.” On the other hand, considering the inflation trends in Nigeria ranged from lows of 15% to highs of 35% over the last couple years, citizens already know their currency is either already worthless or rapidly headed that way.
So why not use their failing currency to buy gold bullion while they still can? (And collect a quarter of a cent’s worth of “bonus gold” at the same time?)
In somewhat related news, it was strange to hear that Poland’s central bank owns more gold bullion than the European Central Bank (ECB). Poland’s central bank now boasts a stockpile of 509.3 tons, while the ECB’s had 506.5 tons.
It was revealed by National Bank of Poland (NBP) governor Adam Glapinski, along with some of his usual choice wording:
“This shows the stability, abundance, and solvency of the Polish economy,” he said.
This whole affair of European Union member nations hoarding gold is weird and suggests some kind of strife between governors of individual nations and the ECB.
If things were great and there was plenty of faith in the euro, these governors would, in essence, treat the ECB as their own central bank. Instead, member nations are distancing themselves from it, to the point where even small countries now want a larger gold stockpile. To me, this makes sense – smaller, developing nations have economies that are more fragile, less equipped to deal with economic crises. In that situation, it’s foolish to rely on someone else to help you out. Of course you want to be able to weather the storm on your own.
The EU has been an experiment from the start, and it’s hardly surprising to see individual member nations wanting to secure their own finances. It’s highly likely that this could turn into a massive talking point in the next decade or two, but for now, we simply have to watch and be amazed by the numbers.