Since the first of the year, gold has gone up in value by over 16 percent. Silver is up by over 53
percent. The Standard & Poor’s index is up just over 1 percent. The trends are interrelated.
Historically, gold was seen as a barometer of world stress. In earlier times, people kept a portion
of their wealth in gold (and silver) to be able to flee with the same in a moment’s notice. The metal
was valuable and small in size and thus easily hidden. Silver, being worth less per ounce, was a
poor man’s substitute. Having gold gave people options to flee instability. It was also considered
a way to immunize against inflation. In 1930, when England went off the gold standard, gold was
officially $35 an ounce. Today it is quoted at $5,105.40 an ounce.
After the brinksmanship last week in Davos over Greenland and the domestic situation in
Minneapolis, people are becoming increasingly fearful and frustrated. According to the Federal
Reserve Bank of St. Louis, there was $37.6 trillion dollars of US government debt outstanding as
of last September. The ability to continue rolling over the debt to a public who is fearful for the
country’s future is going to be increasingly problematic. Of the total debt, $9.1 trillion is owned
by foreign banks and investors. This is the amount that will most likely be cashed in to the United
States, replaced by gold and the debt of countries with more perceived stability, as well as stocks
that represent infrastructure, mining, and other hard assets. The falling dollar means that assets
like gold are not appreciating in other currencies as fast as ours.
Gold has gone up before. The most recent time was the late 1970s when the US was experiencing
double-digit inflation. The actions of Paul Voulker to sharply raise interest rates at that time
resulted in gold prices declining sharply. The Achilles heel of gold speculation is that it pays no
dividends. As the cost to carry the investment increases, gold owners have to sell a portion to
generate cash flow. This is especially true of the speculators who buy gold with borrowed funds.
This time the issues are about more than inflation. As one international agreement after another
are examined by the US government for relevance and continued support and found wanting, other
countries are feeling isolated and aware that the framework that had existed since the end of World
War II is coming apart, often at American insistence.
To call this a reversal is an understatement. It was the Republican Party that pioneered most of the
international agreements, from NATO to the UN, free trade treaties and any number of other
projects, the US Aid for poor countries, which benefitted US farmers first, as all trade was with
US agricultural products. Now, due to strained relations with other countries and the end of the
food Aid program, American crops rot and people abroad starve.
Nor was this the only incident. Punitive tariffs against several countries, especially China, resulted
in their diverting their soybean purchases to Brazil. China has not purchased a single bushel of US
soybeans since last April. In response, administration efforts to pay subsidies out to farmers are
perceived as gratuitous insults to a group of proud and independent owners.
The Federal Deficit was $1.78 trillion in the fiscal year ending September 30, 2025. What it will
be for 2026 is anyone’s guess. There has been proposed a $2,000 check going out to all taxpayers
to offset the effects of the tariffs. With about 240 million taxpayers, that come to $480
billion. A second offer to give all active military personnel a check for $1,776 will come to about
$5 billion or so. If this were done by individuals it would be considered vote buying and a crime.
If it is done by politicians, it is considered tax policy, and the politicians do not pay a dime for it.
As the above example attests, this is hopefully a passing phenomenon. Extreme politics results in
backlashes that move us more to the center again. The question is when and how. As the country
issues more debt, options are foreclosed.
Goldman Sachs, in its 2026 market outlook, credits “American Exceptionalism” as its primary
reason for being optimistic about 2026 and beyond. The authors cite the case where the US
economy and markets are uniquely resistant to long-term decline. Like the 1970s episode cited
above, the country has weathered several crises and will endure this one as well. They point to the
gain in the stock market last year as proof that there is nothing long-term to worry about.
A firm like Goldman Sachs makes its money by being optimistic. Like any seer, they will be right
until they are not. Then there is the matter of timing. As the Japanese proverb states, he who can
see three days ahead will be rich for three thousand years.
The Economy
The economy continues to exist on two tracks. On the upper track are the people and families that
have either a home, assets invested or both. On the lower track are the families that have neither.
For families with investments, things continue to look fairly good overall. For those without, it is
becoming increasingly harder to keep up. Since the end of health insurance subsidies, a material
number of families are seeing their health insurance become more than their mortgage.
“Affordability” will be a key theme in the elections this fall.
Interest Rates
Administration efforts to unseat Federal Reserve Chairman Powell have rattled the financial
markets. Given that his term is to expire soon, it seemed to be done more for show than substance.
In essence, Trump believes that lower interest rates will help turbocharge the economy and his
election chances this fall. Powell, and other members of the Fed, believe such cuts at this time
would be inflationary.
Even when Powell is replaced, the Fed governs by committee vote and it will take years for Trump
to impose his will on the same. While lower interest rates are the mother’s milk of every real
estate developer, it does not necessarily follow that it is good for the country.
Given the deficits, withdrawal of foreign purchases and the like, expect higher interest rates by
year-end.
Inflation
Because inflation is hitting necessities more than goods in general, middle and lower-class
Americans are feeling the brunt. The ICE crackdown on farm laborers has resulted in $10 a pint
raspberries. Health insurance costs are sharply higher. New cars are now selling at an average of
over $50,000 each.
This will take years to undo. Anti-immigration policies have taken away the lowest paid level of
workers for the hospital, service, agricultural and hospitality industries. Tariffs have added costs
to Americans with no offsetting benefits from increasing factory work thus far. At last count, there
were over 63,000 lost factory jobs in 2025.
The Stock Market
Earnings forecasts are looking better and more dispersed. If 2026 can stay on track, it should
reward those who have done less well in 2025. While the year is a month old, it would seem that
some of the favored tech stocks are decelerating in the sense that their profit growth is going up
less than last year. At the same time, smaller companies seem destined to outperform.
Warren M. Barnett, CFA
January 27, 2026
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