So what?

The US is now going through its 11th 'shutdown' since 1980. 1980's one-day shutdown reportedly cost the federal government $700,000. The most recent one, that of 2018-19, which lasted 35 days, landed the government - notably the first period when Donald Trump was President - with a total bill of $5 billion, or roughly twice the daily cost of 1980.

Does this matter? Or is it simply further evidence that US government handles like an ancient supermarket trolley rather than a spanking new limousine? Of course it matters for the more than 750,000 of federal employees now lacking their paychecks and some of whom may lose their jobs entirely.

But does it matter for us gold-holders?

The Dollar gold price has risen by almost 12% in the past month. In Euros and Pounds Sterling the price has gone up by more than 10% in the same time. Over the last 12 months the price rise has been staggering - more than 46% in Dollars and almost the same in Pounds.

The price rises seen have been driven by a set of overlapping factors that are difficult to summarize. One fact however stands out - the failure of the current US administration to introduce stability and confidence. Consumer confidence in the US is weak.

Political irrelevance

Job losses are hitting both the US and the UK. Private sector employment in the US fell by more than 30,000 in September, the biggest drop for more than 2 years. In the UK job losses in the three months to September were around 50,000 according to S&P Global. The US shutdown was apparently shrugged off by equities - the Dow Jones Industrial Average closed marginally higher on Wednesday, as did the Nasdaq, S&P 500 and London indexes.

In both Washington D.C and London the political governors are keen to show that their economic policies are working. President Trump's tariff ventures have not yet started to seriously impact the basics bought by most households - yet American consumers are already complaining about their high cost of living. The UK is now less than two months away from a national budget and most economists are now forecasting a fiscal 'black hole' of many billions. Food prices in August were more than 5% higher, the highest inflation rate for almost two years.

Both economies are experiencing stagflation, as we have said before. The US Federal Reserve expects global domestic product (GDP) to be just above 1% this year and is likely to cut its federal funds interest rates, currently 4-4.25%, soon. The Bank of England is not expected this year to cut the interest rate from its current 4%/year because it is worried about inflation. Neither central bank is likely to hit its inflation 'target' of 2%/year in 2025.

The US Treasury Secretary, Scott Bessent, now says the shutdown could 'hit the GDP' and be a 'hit to working America'. In the UK Prime Minister Keir Starmer now has the lowest satisfaction rating by one market research company for any Prime Minister for almost 50 years.

Gold is forever

Whether it's $700,000 or $5 billion the US shutdown is a clear confirmation of the indifference of American politicians to the economic wellbeing of their citizens. In the UK the Labour government won the 2024 general election on a manifesto that promised no tax rises for 'working people'.

Both of them are too focused on short-term problems however - too tied into their hope or intention for the next election. They have lost sight of the longer term picture.

More than 100 years ago the peacetime spending of the British government was around 8% of its GDP. In the US even lower, around 3%. Yet by 2022 the figures were astonishingly higher, 44% and 36% of GDP.

Wars and welfare state moves have pushed government spending higher. Today we have wars and an increasing reliance on welfare benefits. The costs of both stretch beyond the tax-paying abilities of citizens'.

Over those years the British Pound has lost more than 99% of its value (prices today are more than 147 times greater than in 1914) while the Dollar is only marginally better, having lost 97% of its purchasing power. Fiat currencies are extremely poor stores of value, while gold's purchasing power has radically outstripped them all. Gold's remarkable recent run may ease in the future, but its relative strength is guaranteed. And it's not tied to any political whimsy.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.