Not only are the precious metals prices looking better than they have for several years, but the reasons to own them continue to improve as central banks begin to crank up their massive CREDIT CARD DEBT. In just the past month, the U.S. Treasury has increased the outstanding public debt by a whopping $450 billion.
Of course, they are making up for some lost time as they were unable to increase the debt until the Whitehouse, Senate, and Congress passed a bipartisan deal for a two-year postponement of the debt-ceiling on July 22nd. Thus, the new agreement has kept the U.S. Government from shutting down or defaulting on its debt.
Well, it didn’t take much time after the ink was dry on the new bi-partisan deal that the U.S. Treasury announced plans to issue $814 billion of new debt between July and December. And, as we can see, $450 billion was already issued in August:
Without this $450 billion in new debt, the entire U.S. Government and economy would have begun to shut down and collapse. Furthermore, the U.S. Treasury is finding decent demand for this new debt because an increasing amount of Foreign Treasuries and Bonds have a negative interest rate. So, investors around the world would rather buy U.S. Treasuries and Bonds at a small positive rate than lose money, holding their bonds at negative rates. Of course, this cozy situation won’t last as the Fed will likely be forced to lower rates back to zero and then into negative territory when the U.S. economy rolls over into a recession.
However, here’s an important question. How much does $814 billion of new U.S. Treasury debt look like if we compare it to the value of global gold and silver production in 2019? According to S&P Global Market Intelligence (gold) and my estimate (silver), global gold production will reach 110 million oz (Moz) this year, while world silver production will likely fall to 850 Moz:
If we multiply the annual production figure for gold by $1,500 and silver by $18, the total value equals approximately $180 billion:
So, the U.S. Treasury will have issued another $814 billion in debt in within six months versus the $180 billion value of global gold and silver mine supply for 2019. And, this is only one central bank issuing more debt. Thus, the more debt that is added to central banks balance sheets, the more interest rates have to fall.
Why? Well, for starters, the central banks can’t keep the lights or fund the government if the interest expense they are paying on all this debt continues higher. Which means, the next best option is to get the Bondholders to fund some of the central bank deficits. This is very bullish for gold and silver going forward because the notion that precious metals don’t provide a RETURN or YIELD becomes meaningless when bondholders are charged an interest to lend governments money.