Gold in the Age of Bernie
We are compelled to take our attention off the spreading of the Coronavirus for this post, simply to remind you of the presidential race. It’s become something of a bidding war as the Democratic candidates outbid one another for what the intend to give the American people – guaranteed jobs, national rent control, and free housing, free health care, free college, free daycare, yada, yada, yada.
Next Tuesday, March 3, is Super Tuesday, with Democratic primaries in 14 states. More than a third of the Democratic National Convention delegates will be awarded on Super Tuesday.
Right now Bernie Sanders is the odds-on favorite to snatch the Democratic nomination according to all the betting markets. Real Clear Politics places Sanders’ average among the markets at 55 percent.
Michael Bloomberg is way behind at 21 percent.
How is the rise of Bernie Sanders affecting the outlook for the markets? Frankly, it’s not good for stocks. It is very good for gold.
Goldman Sachs, which had an earlier target for gold to reach $1600 later this year, has raised its forecast. The firm now calls for gold to climb to $1700 over the next three months, and to $1750 in six months.
The investment bank identifies three factors in its projection:
1) Fear-driven investment demand based on the coronavirus;
2) Large global savings glut, while gold has a better outlook for appreciation than bonds in the next recession;
3) The rise of Bernie Sanders, with a policy of large tax hikes that can slam stocks, and a proposed wealth tax that makes gold especially inviting for high net worth individuals.
Jeffrey Gundlach, the man known as “the Bond King, and the CEO of DoubleLine Capital, also views Sanders as a threat to the stock market. In an email to CNBC on Wednesday (2/26) Gundlach wrote, “If this stock market reversal is due exclusively to the virus, then why is United Healthcare down far more than (the S&P 500)? Why is healthcare as a sector broadly not outperforming? Answer to these questions: The market is digesting a better than 50 percent chance of Bernie getting the nomination.”
Senator Sanders’ plan to overhaul the economy runs up to at least $50 trillion. He says the Medicare For All part of his plan would cost $30 trillion over ten years, but this week was only able to offer the means to fund $17.5 trillion of it. That $17.5 trillion is necessarily the result of new taxes, and Sanders is just getting started.
It reminds of Margaret Thatcher’s pithy observation that the problem with socialism “is that pretty soon you run out of other people’s money.”
Of Sanders boosting investment demand for gold, Goldman Sachs says his “proposed wealth tax could incentivize high net worth individuals to buy physical gold bars and store them in a vault, where it is more difficult for governments to reach them.”