Gold and silver prices prepare for a $50 trillion black swan event

on May 31, 2023
  • Gold and silver prices have pulled back sharply recently.
  • There is rising optimism that the US will not default this year.
  • US public debt will likely hit $50 trillion by 2030.

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Commodity prices have retreated in the past few weeks as concerns about the economy worsens. Electric vehicle metals like lithium and nickel have all plunged while crude oil prices retreated ahead of the latest OPEC+ meeting. Gold price, which hit a record high recently, has dropped to about $1,950. Similarly, silver price has moved into a correction after falling by 11% from its YTD high.

Black swan event

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The biggest news recently has been the debt ceiling deal reached between Democrats and Republicans. This deal, if passed, will see the US avoid a default and it will keep the government open. Most importantly, it will prevent a credit rate downgrade by key companies like S&P Global, Moody’s and Fitch.

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However, the deal presents a major black swan event that could lead to more gold and silver demand. While the deal is expected to reduce the deficit by freezing spending, the reality is that public debt will continue soaring.

As shown below, the US has over $31.4 trillion in public debt. This is a major increase considering that the debt stood at $9.7 trillion in 2008 and just $345 million in 1968.

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The rate of public debt growth has increased in the past few years, thanks to the Covid-19 spending. When Trump took office in 2016, the US debt stood at over $19 trillion. 

This new deal is expected to boost US debt by over $4 trillion in the next few years. This will see the US national debt jump to over $35 trillion. Analysts believe that the US debt will hit over $50 trillion by 2030.

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Sadly, there is no possibility of reducing this trajectory. To reduce debt, the US needs to cut spending, including defense, which both parties reject. Also, the government needs to increase taxes, which Republicans oppose. 

US debt and gold prices

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Meanwhile, there is a major risk that the US social security will run out of money in 2034. The timeline could be shorter since government estimates are always wrong. 

Therefore, there is a black swan event in that trust in US debt could erode in the coming years. And with future debt ceiling deliberations, there is a likelihood that the US will default. 

Also, the US will go through a black swan event when social security runs out of money. As we are seeing in France, tampering with social security can lead to chaos. French citizens are up in arms after the government decided to hike retirement age by two years.

In addition to this, the emerging market is up in arms against the US dollar. As we wrote here, the talk of de-dollarisation has never been louder. 

All these factors could be bullish for gold prices since it is the best-known alternative to the USD. This explains why many countries like Russia, China, and Turkey are buying loads of gold. It also explains why gold prices jumped to a record high this year. 

While gold price have retreated, there is a likelihood that they will bounce back in the coming months. If this happens, silver will also benefit. 

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