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There's a new sheriff in town

Commentaries & Views

With today’s inauguration of Joe Biden as the 46th president of the United States, both U.S. equities, as well as gold and silver, did extremely well. Market participants and investors are under the assumption that this new administration will aggressively continue to propose fiscal stimulus aid.

Before his inauguration, President-elect Joe Biden revealed his stimulus proposal which will add another $1.9 trillion to the national debt. The proposed relief package will concentrate on the immediate needs of the nation. In an evening speech in Wilmington Delaware, President Biden said, “Unity is not some pie-in-the-sky dream. It’s a practical step to get any of the things we have to get done as a country, get done together,”.

More importantly, this is only the first step to a much larger recovery package that will follow. The new administration will begin its term with more than one crisis stemming from the global pandemic. Healthcare and distribution of the vaccines will be first and foremost as the president will allocate a large portion of the $2 trillion expenditure to focus upon testing, production, and delivery of vaccines. The remainder of the funds from the “American rescue plan” will provide direct aid to Americans, communities, and businesses which have been directly impacted by the pandemic.

Today’s solid move in both gold and silver, as well as U.S. equities, is based upon the expectations that President Biden will announce additional fiscal stimulus actions which will be announced and detailed as one of his first acts as president of the United States.

Concurrently the Chairman of the Federal Reserve, Jerome Powell has pledged to maintain an extremely accommodative monetary policy with interest rates near zero at least through the end of 2022 and simultaneously continue to purchase $120 billion monthly adding to their assets. These purchases will be primarily mortgage-backed securities, corporate bonds, and U.S. treasuries.

There are also high expectations that the new head of the United States Treasury Department Janet Yellen will continue to allocate additional trillions of dollars in fiscal stimulus. Janet Yellen is on record saying that the United States should “act big” on the economy. Since the beginning of the pandemic, the U.S. government has allocated almost $6 trillion for fiscal aid.

It is the massive expenditures by central banks globally in unison with the United States Federal Reserve and Treasury Department that will provide the underlying support which will weaken the dollar, and take gold and silver prices higher. The European Central Bank will hold a policy meeting this week with the goal of keeping the accommodative monetary policy in place.

As of 5 PM EST, February 2021 Comex gold futures are up by $31.10 (1.70%) and fixed at $1871.50. March Silver futures gained approximately $0.60 (+2.33%) and is fixed at $25.91.

As far as the expenditures that have totaled approximately $4 trillion for aid goes according to President Biden, he believes that this allocation of capital is unfinished business and said that “I know what I just described will not come cheaply. But failure to do so will cost us dearly.”

Clearly, there is a new sheriff in town, one who promises to provide the American public and businesses with the needed capital to stay afloat. As such we expect that our national debt to reach new record levels.

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Wishing you as always, good trading and good health,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.