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(Kitco News) - The gold market, while supporting above $2,000 an ounce, is struggling to build enough momentum to break to new all-time highs; however, one market strategist says that it's only a matter of time before it hits this target as the U.S. deficit continues to grow.
Jess Felder, founder of the Felder Report, has been a long-term gold bull and warned investors in late February that technical indicators showed gold on the cusp of breaking out to all-time highs. In his latest update, he reiterated his bullish stance highlighting fundamental support for higher prices.
Felder's comments come as gold prices continue to consolidate around $2,000 an ounce. June gold futures last traded at $2,017 an ounce, up 0.48% on the day.
Felder said that he expects gold prices to be driven to new all-time highs as the U.S. deficit continues to grow. He explained that data from the U.S. Treasury Department showed that in the first half of the Fiscal year, which ended in March, the Federal deficit hit $1.1 trillion, up by $432 billion compared to the same period in the previous fiscal year. He added that a big reason for the increase in spending was in part due to the rapid rise in interest costs.
"Longer-term, there is a clear widening trend that began back in 2015 that appears to now have resumed after some pandemic-inspired gyrations. And, if history is any guide, this deteriorating fiscal trend should represent a structurally bearish influence for the dollar in the months and years to come," he said.
Felder added that history has shown that gold is the best hedge investors have to protect themselves from the deteriorating fiscal situation.
"The last time the deficit reversed from a narrowing trend and began a major widening trend, back in the early-2000's, it coincided with a major top in the dollar index, which evolved into a major bear market for the greenback that lasted roughly a decade," he said. "This was one of the primary catalysts for a major bull market in the price of gold which rose from a low of $250 in 2001 to a high of nearly $2,000 a decade later."
Along with the bullish fundamental backdrop, Felder said that gold is still very much a contrarian play as investors show little interest in owning the precious metal.
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Despite all the new attention gold has received after last month's banking crisis spurred investors to the safe-haven asset, Felder said that the precious metal is still highly under-owned by generalist investors compared to equity markets.
"There's a good chance that the deteriorating fiscal situation will, over time, light a fire under investor appetites for precious metals relative to financial assets, just as it did two decades ago. And that's exactly the sort of thing that could power another major bull market for the precious metal," he said.
Felder isn't the only analyst that is looking at the U.S. deteriorating fiscal situation. Some analysts have said that even as fears of the banking crisis start to wane, the ongoing debt ceiling debate is creating new concerns.
Wednesday, U.S. Speaker of the House Kevin McCarthy, proposed a bill that would raise the U.S. debt limit by $1.5 trillion and cut discretionary spending by $130 billion.
The House is expected to vote the on the bill next week. However, it's unclear if it will make it through the Senate. Democrats who control the Senate have said they want to pass a clean debt ceiling bill.
The U.S. hit its debt limit in January and the Treasury said that it would be able to meet its debt obligations through early June.
