GLDI - Gold And U.S. Politics
2024-05-21 06:30:00 ET
Summary
- Freddie Mac has put forward a proposal that would enable it to buy second-lien mortgages, which could inject as much as $850 billion into the economy. If Fannie Mae were to follow suit, the total amount injected could be close to $2 trillion.
- President Biden announced large tariff increases on products imported from China. Tariffs are paid by the buyers, so the main effect will be higher prices in the US for some products, especially products associated with the so-called “energy transition”.
- These actions will result in the popular measures of inflation being higher over the next couple of years, and the effects would be bearish for the US dollar and bullish for most assets and commodities priced in US dollars, including gold.
Editor's note: Originally published at Gold Market Update on May 21, 2024.
In the 11th March Weekly Update, we noted that the rise in the US dollar gold price in the face of tight US monetary policy and high (by the standards of the past decade) real US interest rates implied concern about what’s likely to happen to the US dollar in the future. We went on to write:
Gold And U.S. Politics“ At the moment this concern probably has more to do with the US government’s debt quantity spiralling out of control than the risk of the US economy entering recession in the near future. The underlying cause of concern, we suspect, is that the current administration appears to be willing to borrow/spend with complete abandon in its efforts to retain power, and there is no evidence that limiting the pace of government debt expansion is a priority on the other side of the political aisle. ”