On Thursday, October 27, the US government will publish the most recent data on Q3 GDP and the US national debt. Economists and investors will evaluate how deep the economy has contracted between Q2 and Q3. The US Federal Reserve has been aggressively raising interest rates with the end goal of having an economic contraction at tackling inflation.
Actually, the US has already entered a recession. If the report reveals that there has been a further decline in GDP in Q3, this would be the third quarter in a row of GDP contraction in the US.
The most recent numbers according to the US Debt Clock.org are indicating that US national debt has exceeded $31 trillion and keeps growing. Meanwhile, the most recent data from the Fed revealed that its balance sheet has only declined slightly from approximately $8.7 trillion at its peak to its current level of $8.3 trillion.
Analysts anticipate that the Fed will continue to hike rates at both November and December FOMC meetings by a total of 150 basis points. This would take the Fed's funds rate to between 450 and 475 basis points. However, interest rates at such a high level may have an adverse effect on servicing the national debt. Currently, the size of federal borrowings exceeds the annual GDP. Higher interest rates will make it more expensive for the government to service the national debt.
This means that interest rates at 4.5% to 5.5% are unsustainable in the long term as they increase the cost of servicing the national debt. The question is whether the US Federal Reserve will change its current aggressive monetary policy or at least pause the interest rate hikes after December. More importantly, maintaining interest rates at that level for any sustained time will have extremely detrimental effects on the government's ability to service the interest payments alone on the $30,000 trillion in debt.
Both gold and silver have come under pressure since the Fed launched rate hikes in March this year. Gold has declined by more than 22% from the March highs to the lows hit in September.
Meanwhile, silver has faced a much deeper decline, having fallen by more than 32% from the highs reached in March.
The short-term outlook for gold and silver is still bearish due to the upcoming interest rate hikes by the Federal Reserve in November and December.
The decline in gold and silver this year has been substantial, and the question is whether or not next week's report on third-quarter GDP and updated national debt will affect market sentiment for the precious metals.
