Melt-Up in U.S. Equities as President Announces Infrastructure Deal that Pressures Gold

As of 4:30 PM, EST gold futures are trading down, with the most active August 2021 contract currently fixed at $1775.20, after factoring in today’s decline of $8.20 (-0.45%). Concurrently U.S. equities had respectable gains and hit all-time highs as President Biden announced today that “We have a deal” after meeting with Senators to agree on a bipartisan infrastructure plan.

According to a report in MarketWatch, “President Joe Biden on Thursday announced a bipartisan deal on infrastructure spending after he hosted an Oval Office meeting with senators who had crafted a framework for an agreement. “We have a deal,” Biden told reporters outside the White House following the meeting.”

President Biden added, “I didn’t get all I wanted, they gave more than, I think, maybe they were inclined to give in the first place. But this reminds me of the days we used to get an awful lot done up in the United States Congress.”

The proposed infrastructure package now has a framework. The expectations are that the cost will be 1 trillion over the next five years, with an additional 200 billion over the following three years.

The Dow Jones Industrial Average gained 322.58 points (+0.95%), closing at 34,196.82. The S&P gained over ½%, closing at 4266.49. The NASDAQ gained .69%, a total of 97.98 points, and closed at 14,369.78. Both the NASDAQ Composite and the S&P 500 closed at an all-time high.

One of the events that market participants are largely ignoring were statements made by the U.S. Treasury Secretary Janet Yellen yesterday. As reported by Anna Golubova of Kitco News and other news outlets, the Treasury Secretary spoke to Congress yesterday.

According to CBS News, “Treasury Secretary Janet Yellen urged Congress Wednesday to address the debt ceiling immediately, to keep the U.S. from defaulting on its financial obligations.”

The article spoke about the fact that in 2019 President Trump suspended the nation’s borrowing limit for two years until after the 2020 elections. That suspension will expire on July 31 and could set off a battle in Congress about overspending.

Yellen’s remarks occurred during her testimony before a Senate subcommittee about the Biden administration’s proposed 2022 fiscal year budget. She said that “Defaulting on the national debt should be regarded as unthinkable. Failing to increase the debt limit would have absolutely catastrophic economic consequences,” Yellen said. “It would be utterly unprecedented in American history for the United States government to default on its legal obligations.”

This increases almost a certainty that the United States government will continue to rack up more debt. As interest rates rise, service on the national debt will cost more. I believe at some point, market participants and economists will have to take notice of the swelling national debt, and that would be a bullish undertone for gold which has been trading under so much pressure recently.

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Wishing you, as always, good trading and good health,

Gary S. Wagner