Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will Trump’s Free Cash Help the Economy and Gold Market?

Commodities / Gold & Silver 2020 Mar 23, 2020 - 07:09 PM GMT

By: Arkadiusz_Sieron

Commodities Economic data shows that the coronavirus crisis will be severe. To soften the blow, Trump announced his support plans for the economy. Will the stimulus package help? And when will gold finally rise?

COVID-19 Hits the US Economy

The global epidemic of COVID-19 has already hit the US economy. We start to see evidence how bad this crisis might be. First, retail sales dropped 0.5 percent in February. That’s the biggest drop in a year. But it will change quickly – just think about the number in March or April!

Second, the US consumer sentiment fell from 101 in February to 95.9 in March. Again, expect much worse readings in the future, as the number covers only the beginning of the month when Americans just started to acknowledge the coronavirus threat.

Third, the Philadelphia Fed manufacturing index fell from 36.7 in February to -12.7 in March, the lowest reading since June 2012. So, forget about recovery in the manufacturing recession.

Fourth, initial jobless claims surged from 211,00 last week to 281,000 yesterday. It means that more Americans applied for unemployment benefits. So, prepare for the rise in the unemployment rate!

Fifth, as you can see on the chart below, the New York Fed’s Empire State business conditions index fell record 34.4 points to -21.5, the lowest level since the global financial crisis. As the COVID-19 epidemic in the US was still in its early stages during the survey, the worst seems yet to come.

Chart 1: New York Empire State Manufacturing Index from March 2015 to March 2020

Trump To The Rescue

On Tuesday, U.S. President announced a plan to send money to Americans as soon as possible to ease the negative economic shock from the coronavirus crisis. Trump said some people should get $1,000 as help with their living expenses because they cannot work under quarantine and social distancing. On Wednesday, he wrote on Twitter:

For the people that are now out of work because of the important and necessary containment policies, for instance the shutting down of hotels, bars and restaurants, money will soon be coming to you.

I also want one grand, can you send it to me as well, Mr. President?

The administration is also talking about a new stimulus package of around $850 billion to cover payroll tax cut, small business loans, and bailouts for airlines struggling from plummeting demand. However, Democrats, who control the House, prefer refundable tax credits for self-employed workers and ensuring that sick workers can get longer-term leave if needed rather than a cut in a payroll tax. It would be actually the third coronavirus aid plan to be considered by Congress just this month. Trump signed the first $8.3 billion package to battle the coronavirus two weeks ago, and he signed on Wednesday the second $100 billion package that would expand paid leave and unemployment benefits. Anyway, one thing is certain: the US government stimulus will be large!

As you can see in the chart below, the fiscal deficit for 2019 is $984 billion, or 4.6 percent of GDP. Before the COVID-19 pandemic, the budget deficit for 2020 was projected to be $1 trillion. It means that the stimulus will balloon the fiscal deficit to $1.9 trillion, or to staggering 8.8 percent of GDP, the level not seen since the Great Recession.

Chart 2: Federal deficit as a percent of GDP from 1970 to 2019

But that’s not all. To make matters worse, the tax revenue will plummet, while the GDP is likely to shrink this year. Nobody knows how much, but let’s follow Goldman Sachs and assume that the annual GDP growth will decline 0.4 percent in 2020. So, the deficit will be even higher, definitely more than 9 percent of GDP! As a result, the federal debt will increase from $23 trillion, or 106 percent of GDP, in 2019 to almost $25 trillion in 2020, or 116 percent of GDP. Oops, we have a debt problem here!

Implications for Gold

What does it all mean for the gold market? Well, we are in a recession. The economy will be hit severely, especially in the first half of the year. The White House and Congress announced the stimulus package. But it did not help and calm the stock market – which is not surprising given the level of fear. What it will do, is to balloon the public debt and raise the likelihood of introducing the universal basic income in the future. All this means higher government expenditure, higher deficits and higher indebtedness. Soaring debt, combined with increasing money supply, very low real interest rates and global recession, is another fundamentally positive factor for the gold market. When the blood dries on the trading floor, investors will cease to sell gold in order to raise cash – and then we get the fundamental reason for the rally in gold to start. The similar dynamic occurred after the collapse of the Lehman Brothers – gold fell initially before rebounding sharply amid the loose monetary policy.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor


All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in