Investors Favor Gold Over Stocks in the 2023 Gallup Poll
The Wall Street Journal covered the annual Gallup Poll of American investors’ favorite asset categories in an article entitled “Individual Investors Seek Safety of Gold.” It began by profiling a young (age 44) Massachusetts engineer frustrated with the vacillating values of tech stocks, who said, “Precious metals … makes it so I can sleep at night, where I hold it and nobody can hurt me,” adding “It’s impossible that I’m going to end up in a bread line somewhere, waiting for someone to drop something in my hand so I can eat.” His sentiment is reflected in the fact that the 2023 Gallup Poll found 26% of Americans polled (in May) believe that Gold is the #2 long-term investment, behind only real estate. Stocks dropped from 24% (#2) in 2022 to 18% this year (#3).
Gallup’s Question: “Which of the following do you think is the best long-term investment?”
(Real estate was #1 each year, but gold has risen from #4 to #2 in the past four years)
Update on Budget Deficits and Inflation as the Federal Fiscal Year Ends
The Federal Open Market Committee (FOMC) met at a crucial time (September 19-20) as the federal fiscal year ended, on September 30. Last month marked the 22nd anniversary of 9/11. Few mentioned that since 9/11, the federal debt has multiplied 10-fold from $3.3 trillion to $33 trillion, in part because of two long wars in Afghanistan and Iraq but also a huge expansion in the welfare state and related benefits. At the same time, economic growth has slowed and labor force participation has fallen dramatically. America has changed since 9/11/01.
Just since the start of this decade, the government has added over $9 trillion more in red ink: $3.132 trillion in fiscal year 2020, $2.776 trillion in FY 2021 and $1.375 trillion in FY 2022. For FY 2023, the nonpartisan Committee for a Responsible Federal Budget (CRFB) projects a deficit of $2.0 trillion.
This means the Federal Reserve is caught in a bind because they can’t really afford to raise rates further. They have already raised short-term interest rates by over 5% in the past 17 months. Long-term rates have followed, with the benchmark 10-year Treasury rate rising from 3.25% last April to 4.35%, recently. If the cost of servicing the $33 trillion federal debt “only” costs 4%, that amounts to $1.32 trillion in interest payments per year on a debt that keeps rising.
On the inflation front, the Producer Price Index (PPI) rose 0.7% in August, almost double the analysts’ consensus estimate of 0.4%. But gasoline prices surged a whopping 20% in August, and August’s overall wholesale energy prices rose by 10.5%.
Then, the United Auto Workers (UAW) went on strike, which could push the unemployment rate above 4% for September. The weekend edition of The Wall Street Journal printed an editorial entitled, “A UAW Strike Made in Washington,” since they said, “The underlying cause of the auto walkout is the Biden Administration’s forced electric-vehicle transition.” In effect, the Biden Administration’s mandate for expensive EVs (which America is slow to buy) has forced the Big 3 (GM, Ford and Stellantis, formerly Chrysler/Jeep) to lose money on those cars, even though they still make money on standard (fossil fuel) vehicles. As long as the Biden Administration keeps forcing the Big 3 to make more unprofitable EVs, the UAW strike may result in jobs moving overseas.
As I discussed recently, it looks like this summer’s higher energy prices may be here to stay OPEC (led by Saudi Arabia) and OPEC+ (mainly Russia) are trying to keep prices high, in part to punish President Joe Biden. Crude oil touched $90 per barrel in September and there have been reports that in the recent G20 meeting, Saudi Arabia wants to push crude oil prices up to $100 per barrel. Arab light crude was close to $100 per barrel last month. Also, a Gulf hurricane, pipeline break or the war in Israel could disrupt production and send oil prices up to $100 at any time.
Speaking at the Atlantic Festival last week, National Security Adviser, Jake Sullivan, said, “The Middle East region is quieter today than it has been in two decades.” He noted that this quiet allowed the Biden administration to focus on other regions and other problems.
Sullivan’s ill-timed claim is why investors flock to gold as uncertainty confronts us today. It’s only a matter of time until gold and silver follow the increased energy prices, since the core of the surge is based in global hot spots like Russia, Saudi Arabia and other OPEC nations.