After Seven Months into the Pandemic

Gold continuously moves higher in the past months and with the news of a possible passing of fiscal stimulus before the election in November, it moved again slightly higher. According to Art Hogan, chief market strategist, the main reason for the market volatility right now is the news on the stimulus package rather than the upcoming election.

“The No. 1 catalyst in this market causing the most volatility is the path of fiscal policy and whether we can get that out of the Beltway,” Hogan said in CNBC.

Even Federal Reserve Jerome Powell acknowledged along with other economists that this stimulus will go to Americans suffering from either unemployment or underemployment. Aside from this, it would also reenact the Paycheck Protection Program to help businesses who shutdown during the pandemic to be back on their toes again and restart their business.

And while both the Republicans and the Democrats both agree on the need to help the Americans on their rent,  utility bills, other mortgages and even for buying their basic needs, they disagree on whether the states should be funded or not.

The likely agreement will be $1,200 to taxpayers highly affected by the pandemic and an additional $600 to those unemployed, but the possible effects of this should not be brushed off.

The budget deficit projected by the Congressional Budget Office in 2020 is 3.3 trillion as of Sept 2020, this is more than triple the shortfall in 2019. Here is the chart from the CBO.

According to CBP this is 16% of the Gross Domestic Product (GBP), and this years deficit is the highest since 1945.

This deficit also is not without and consequence. As a result of this deficit, there is a likely sharp increase in debt as projected by the CBO which according to them could be 98% of GBP as against 79% in 2019 and 35% in 2007. Sadly, the 35% deficit in 2007 is just before the 2008 recession. These numbers to some can be more frightening than the pandemic the most of the world are in right now.

Below is another graph from the CBO.

Now add that deficit to the $2 trillion effect of the stimulus bill and we will have the largest debt in record. With these numbers, dollar would likely weaken more and the people might go to gold or even crypto.

The gross domestic product may likely have a record gain but that doesn’t mean that the economy is actually bouncing back, this is mostly because there have been earlier re-openings. With the current situation, the bigger market, those that heavily relies on the person to person interaction still has a long way to go to full recovery.

In addition, while we see that jobless claims has swiftly fallen from last springs peak, it has been stalled in the past few weeks. In the last week, still more than 800,000 Americans filed for unemployment according to the Department of Labor. In the chart below from the Depart of Labor, we can see that the jobless claims or unemployment remains at an elevated level and may likely to remain that way in the coming months. Remember that companies like Walt Disney, American Airlines and Allstate Corp. has declared last week thousands of layoffs.