Gold: It's not just for the government shutdown

CNCB says investors should have gold as a hedge if the government shutdown persists. But they miss the real problem. That comes after the government reopens!

At midnight on October 1, the feds shut the doors, turned out the lights, and went home.

Well, some of them did.

We are now in the midst of a partial government shutdown, and Republicans and Democrats fuss over government funding.

Gold and silver both surged higher as investors looked for a safe haven. Gold eclipsed $3,900 an ounce briefly Thursday morning (Oct. 2) morning, and silver was comfortably above $47.

Even with gold rising over 87 percent over the last 21 months, the mainstream financial media has been slow to hype gold. CNBC finally recommended the yellow metal last week, but gave some sketchy investment advice.

With gold pushing toward yet more record highs, the network highlighted gold again on Wednesday, but missed the real reason you need it.

The CNBC report said investors should consider gold as a hedge “if the U.S. government shutdown drags on longer than expected.”

It quoted a USB analyst saying, “Gold continues to serve as an effective hedge against episodes of economic, political, and geopolitical risk and would likely perform well if a U.S. government shutdown proves longer or more disruptive than feared.”

In a Wednesday note, Citi analysts pointed out that gold tends to weaken into and out of shorter government shutdowns.

“But in longer shutdowns, gold catches a bid as uncertainty mounts, rallying 2 percent on average and holding that strength for a couple months.”

The CNBC analysis is in the vicinity of the target, but it misses the bullseye. The issue isn’t so much the government shutdown itself. It’s what happens after the shutdown is over.

This impasse is all about spending. And it’s almost certain that when everything is said and done and they unlock the doors in D.C., there will be more of it.

I can say this with complete confidence because spending always increases. 

Keep in mind that every president since Calvin Coolidge has left the U.S. with a bigger national debt than when he took office. This includes President Bill Clinton, who enjoyed a few years of budget surpluses.

Even though the bill that Democrats refused to support was advertised as a “clean” continuing resolution (CR) that would merely keep federal agencies funded at current levels until Nov. 21, it still had some spending increases. According to the CBO, the CR would implement a handful of narrow spending increases for specific needs, while mandatory programs keep running on autopilot.

And once the government is open for business again, mark my word, spending is going to increase even more.

And it’s already out of control.

With one month left in fiscal 2025, the federal government had spent $6.73 trillion, a 5.9 percent increase over the same period in fiscal ’24. The Trump administration has already spent more this fiscal year than it did last.

Make no mistake, the 2026 spending bill will raise spending even higher. Oh, they may trim the speed of some of the spending increases. They’ll call that a “cut,” and partisans will cheer. But spending will increase on an absolute level.

It always does.

Uncle Sam is already tapped out. He's $37 trillion in debt and already spending over $1 trillion annually on interest expense.

In fact, interest expense is the second-largest spending category in the federal budget. It’s more than national defense. It’s even more than Medicaid. The only higher spending category is Social Security.

Meanwhile, a lot of people are becoming wary of buying U.S. Treasuries. Who wants to lend their drunk uncle more money when all his credit cards are already maxed out? Falling demand for Treasuries pushed interest rates even higher.

What does this mean for you?

Inflation.

That’s the only way the federal government and the central bank can keep this Ponzi scheme running. The central bank must intervene by pushing down interest rates. And it will likely have to resume quantitative easing at some point to keep borrowing costs down.

That means money creation – the definition of inflation.

This is why you need gold as a hedge – no matter how long the government shutdown lasts.

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