Perspective By Rich Checkan
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The U.S. Presidential election is just twenty-seven days away. Congress will certify the election results on Monday, January 6th (assuming there is an orderly and peaceful transfer of power). And the next President of the United States will be inaugurated at noon eastern on Monday, January 20th, 2025.
But for investors, the impact of the election on your portfolio has already begun. For starters, the gold price is up 26% year-to-date and 42% in the last twelve months. Gold has made higher highs despite relatively high real interest rates. And now, with global central banks cutting rates to spur growth, gold is poised to go higher. What happens next?
One key date that comes just AFTER the U.S. election is the publication of an obscure report by the Government Accountability Office (yes, such an office actually exists). The report is a financial audit published by the Bureau of the Fiscal Service (yes, such a bureau actually exists). This report comes out once a year and the next version, published in the second week of November, will have an update on the chart below (what I call the most important chart in finance).
Years ago, when I first began reporting on this chart, almost nobody else mentioned it. Now, it’s so important–especially to precious metals investors–that you can find current versions on social media. But why? What does it tell you about gold and your portfolio in 2025?
The chart shows when the national debt must be paid back. Technically, it shows the maturity schedule of publicly held debt. That’s an important point. Publicly held government debt trades in the market. The less confidence investors and the public have in the safety and security of U.S. government debt, the more volatile that debt is AND the more investors begin to prefer to hold gold as a ‘risk free’ asset in their portfolios.
This time last year, the chart showed that 60% of marketable debt, or about $15.4 trillion–matured within four years. Over ten years, that figure jumped to $21.3 trillion. That means that debt has to be repaid or refinanced (at higher interest rates) in the coming years. In fact, Treasury Secretary Janet Yellen issued some $2 trillion in shorter-term debt (Treasury Bills) to finance the US government’s nearly $2 trillion deficit in 2024.
There’s another date to consider for your portfolio related to the election: Wednesday, January 2st. That’s the date the suspension of the debt ceiling expires. The Fiscal Responsibility Act of 2023 suspended the debt ceiling at $31.4 trillion in January of 2023. When that suspension ends, the debt ceiling will automatically reset to the current level of Federal debt ($35.6 trillion). Congress and the new President must then agree on whether to raise the debt ceiling, suspend it, or make budget cuts. What’s most likely?
Congress has lifted, extended, or revised the debt ceiling 78 times since 1960. Since January of 2016 alone, the debt ceiling has been raised five times. There are some in Congress calling for the debt ceiling to be removed altogether. They argue that this would prevent a crisis in which bond investors worry about the US government not being able to pay its bills, or an outright default on American debt.
For gold investors, the important point to realize is that inflation is a stealth form of default. Higher inflation should be expected in early 2025. It’s highly likely that whomever the new President is, a debt ceiling deal will be struck to avoid the Treasury Department having to take ‘extraordinary measures’ to pay Uncle Sam’s bills. Such a deal is likely to include massive hurricane/FEMA relief and funding, and, if Republicans control both the US Senate and House of Representatives, funding for a new border wall.
In plain terms, no matter who wins next month, total U.S. debt is going up. At Bonner Private Research, we believe this means U.S. government bonds are neither ‘safe’ nor ‘risk free.’ And despite the strong possibility that gold corrects from its recent gains ( a great time to take a position or add to your existing position), a shift is underway in which more investors are realizing what J.P. Morgan said privately years ago: gold is money, everything else is credit.
P.S. Watch for more gold price volatility later this month when the BRICS countries meet in Kazan, Tatarstan October 22nd to 24th. It is widely expected that, led by China and Russia, some sort of gold-backed currency or unit of trade settlement could emerge. The BRICS understand that for a nation with a debt problem, inflation is a policy, not a side effect. They are structuring their central bank reserves accordingly, adding gold and reducing US government bonds. You should do the same.
