January 2025 - Week 4 Edition
President Trump’s Task Force Faces a Daunting Effort to Cut Spending and Budget Deficits
Outgoing President Joe Biden captured headlines by issuing pardons to family, friends and any potential target of the Trump administration, whether under suspicion of wrongdoing or not, but perhaps his biggest slap in the face of the American public was running up a $679 trillion deficit in the first fiscal quarter of Fiscal Year 2025, which began on October 1, 2024. That’s red ink at a nearly $2.7 trillion rate.
The Congressional Budget Office just released its final monthly report card on Joe Biden’s deficit spending addiction. For the first three months of fiscal year 2025, Biden’s big spenders borrowed $125 billion more than they borrowed during the same opening quarter in Fiscal 2024. All this is happening during what they call a “great economy,” when revenues should be pouring into the Treasury. Instead, federal tax revenues actually declined by 2.26%, year-over-year, while federal spending is up 6%, year over year.
And this is coming from a President who claimed he “reduced the deficit more than any other President”!
President Donald Trump will be challenged to cut spending – especially after he promised to cut taxes on tips, on Social Security benefits and on overtime pay, while keeping all of his 2017 tax cuts. GDP growth will need to increase by 4% or more per year, while Elon Musk and his team will need to have the power to make massive cuts in departmental reach for several cabinets and the ability to address entitlements, too.
We wish the new Trump team good luck but it will take the kind of reform that could legitimately be called “revolutionary” to bring budget deficits back below $1 trillion per year, much less to balance the budget.
This means we expect gold to keep rising in the face of insurmountable budget deficits, which will eventually cause the Fed and Treasury to “monetize the debt” by printing even more money each year.
December Inflation Rates Were “Tame” But Higher Inflation Will Return Soon
Last week’s inflation reports were fairly tame but those were based on December prices. On Tuesday, the Labor Department announced that the Producer Price Index (PPI) rose by only 0.2% in December, below the economists’ consensus estimate of 0.4%. The next day, the Consumer Price Index (CPI) came out at +0.4% but the core index, excluding food and energy, rose by just 0.2% so inflation seemed controlled.
That, however, is all based on December data. In the first half of January, silver, oil, copper, platinum, corn and other commodities have risen by over 5%, reflecting the Biden spending spree. Oil rose from under $70 on December 23 to $80 on January 15. The CRB Commodity Price Index reflects these commodity price gains. The Index is up over 7% recently, from 350 on December 27, 2024, to 375 on January 21, 2015.
Here are the price gains so far in the commodity futures market, which is somewhat different from the spot market, but this is the market where the most active investors trade the most contracts each day: Gold is up nearly 5%, with Silver, Platinum, Palladium and Copper up an average 8% or more in three weeks.
As I have mentioned before, a rising gold and silver market helps bring in new clients to rare coins, give our professional account representatives a call today to discuss how we can help you build your investment portfolio and collection.
These raw commodity price gains will soon work their way into the Producer Price Index (PPI) for January (released in mid-February) and then into the Consumer Price Index (CPI) later in 2025.
The relatively tame inflation figures from last week – the PPI on Tuesday, January 14th and the CPI on January 15th – lifted the gloom on both precious metals and stocks. The stock market finally recovered from negative territory to marginally positive (+3%) for the new year, but precious metals did even better.
The February gold contract rose from a close of $2,673.50 on January 13 to $2,712.50 on January 15, then rose to $2,756 on January 21 (+3%), while the March 2025 silver contract rose from a close of $30.09 on January 13 to $31.32 on January 15 (+4%). Perhaps traders saw the fact that commodities across the board were rising far faster than the December inflation figures (released in January) reflected. Gold was already at $2,780 an ounce early Friday, up $20 on the day, with silver at $30.69 per ounce.