Global perspectives with AuAg
Donald Trump has nominated a new Federal Reserve Chair, Kevin Warsh. While Warsh has at times been perceived as hawkish, it would be inconsistent with Trump’s agenda to appoint a Fed Chair unwilling to cut interest rates. In interviews, Warsh appears highly aligned with Trump’s policies, raising questions about how he will establish an independent stance going forward.
President Trump’s economic mantra is “run it hot” — an aggressively stimulative economic policy characterised by low interest rates and, most likely, renewed quantitative easing to maximise growth. We view this as the dominant force ahead, with a less independent and increasingly politicised Federal Reserve providing the stimulus the President desires in order to keep the economy running with the pedal to the metal.
US government debt is now approaching USD 40 trillion. The concern is not only the size of the debt itself, but also the growing cost of servicing it. Long-term bond yields remain high, but demand is weak. The Federal Reserve is the only buyer large enough to push yields meaningfully lower. At the same time, total debt keeps growing. The U.S. is running an annual budget deficit of about 7%, which is funded by continued borrowing.
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While there will undoubtedly be periods when the US dollar strengthens against other currencies, the country’s large and persistent budget deficits, unfunded fiscal position and the loss of global trust resulting from attempts to exert control over other nations suggest that the so-called “debasement trade” will most likely continue. Over recent decades, the world has effectively had two reserve assets — the US dollar and gold. Today, in our view, only one truly remains: gold.
For those wishing to explore the silver sell-off in more detail, we recommend the attached reading. We now look forward to a continued eventful spring and, hopefully, a more peaceful period in an increasingly unsettled world.
Disclaimer:
This material is marketing communication. The information does not constitute investment advice or a personal recommendation. Investment decisions should be based on the fund’s information brochure and fact sheet, as well as your own considerations.
Investments involve risk. Past performance is not a guarantee of future returns. The money invested in the fund may both increase and decrease in value, and it is not certain that you will recover the entire amount invested.
Before making an investment decision, you should review the fund’s information brochure and fact sheet, available under Documents on the respective fund page at www.auagfunds.com.
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