A Closer Look at the US Dollar, the Gold Price, and Government Debt Concerns

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Written By Dean McHugh
  • The rising US dollar gold price, despite tight US monetary policy and high real interest rates signals concerns about the US dollar’s future.
  • The primary concern is the US government’s increasing debt and spending, especially with efforts to boost re-election prospects.
  • Recent measures, including expanded SSI eligibility, new mortgage purchase proposals, and increased tariffs, could significantly impact the economy and inflation.

Government Debt and Spending

The rising gold price, even amid tight US monetary policy and high real interest rates, suggests apprehension about the future of the US dollar.

Credits: DepositPhotos

The main concern is the US government’s uncontrolled debt growth. The current administration’s aggressive borrowing and spending, with no evident prioritization of debt limitation, exacerbates these concerns. This behavior appears driven by a desire to boost re-election prospects.

Recent Examples of Government Spending Initiatives

Several recent government actions exemplify efforts to stimulate the economy, likely with electoral motivations:

  • Expanded Definition of “Public Assistance Household”

A new rule will broaden the criteria for households eligible for Supplemental Security Income (SSI). Effective September 30, 2024, this change could increase SSI recipients from 7.5 million to over 40 million, significantly expanding the program’s reach.

  • Freddie Mac’s Proposal to Buy Second-Lien Mortgages

Freddie Mac has proposed enabling the purchase of second-lien mortgages, allowing homeowners to tap into an estimated $32 trillion of home equity. If implemented, this could inject up to $850 billion into the economy. If Fannie Mae follows suit, the total injection could approach $2 trillion, representing a substantial economic stimulus.

  • Increased Tariffs on Chinese Imports

President Biden announced significant tariff increases on Chinese products, including a rise from 27.5% to 102.5% on China-made Electric Vehicles (EVs). While tariffs are ultimately paid by US consumers, leading to higher domestic prices, the intent is to create the impression of economic protectionism, despite likely negative economic effects. This policy also finds support across political lines.

Impact on Inflation and Financial Markets

The cumulative effect of these initiatives will likely drive inflation higher over the next few years. However, the most impactful measure could be the proposal allowing GSEs to purchase second-lien mortgages.

If approved, this move could inject nearly $2 trillion into the economy over several years. Financial markets would start discounting these effects immediately, resulting in a bearish outlook for the US dollar and a bullish one for assets and commodities priced in US dollars, including gold.

Concerns About The US Dollar

The rising gold price amid tight monetary policy and high real interest rates indicates concerns about the US dollar’s future, primarily due to escalating government debt and spending.

Credits: DepositPhotos

Recent government measures aimed at boosting economic activity ahead of elections, including expanded SSI eligibility, mortgage purchase proposals, and increased tariffs, will likely contribute to higher inflation and significant economic impacts.

The potential $2 trillion injection from GSEs purchasing second-lien mortgages could have the most profound effects, bearish for the US dollar and bullish for commodities like gold.


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