According to news wire reports, gold’s $20 plus upside move today is part of a rush to safe havens. US Treasuries are up also, which means that yields are down. The blame, again according to reports, lies with the tariffs that Trump laid on Chinese imports. China fired back with tariffs of its own. Will a trade war ensue?
It is such developments that cause investors to rush to gold and silver. And, there is reason to believe that Chinese retaliations have only just begun.
Trump put tariffs on $50 billion dollars of imports; the Chinese levied import taxes on only $3 billion of US imports. As the Chinese announce other taxes, more investors will seek safe havens. But, just how safe are US Treasuries?
The US is saddled with $21 trillion in official debt, and few seem to care, otherwise the price of gold would be much higher. Just as important, but often forgotten, are the $210 trillion in unfunded liabilities (according to Boston University economics professor Laurence Kotlikoff.)
When investors buy Treasuries, they most likely will get their money back. But, what will be the purchasing power of the dollars that are returned? With the $210 trillion in unfunded liabilities, what will be the purchasing power of the money that is returned as the Fed prints additional dollars to fund the borrowings necessary to pay the $210 trillion in unfunded liabilities?
The problem with Treasuries is that they are “fixed dollar” investments. As inflation cranks ups, interest rates will go higher and Treasuries will fall in value. If forced to sell before maturity, Treasury investors will suffer losses. If held to maturity, the purchasing power of the dollars returned will be diminished.