Debt’s Toxic Ripple Effects: Gold Flowing Toward Historical Repricing

By Matthew Piepenburg

Partner

December 29, 2023

In Part I of this two-part conversation with Michelle Makori of Kitco News, Matterhorn Asset Management Partner, Matthew Piepenburg, looks at the key financial themes of 2023 and the critical trends to impact the year ahead.

With markets rising on Powell’s projection of 2024 rate cuts, Piepenburg unpacks the Pavlovian nature of artificial (Fed-driven) rather than natural (balance-sheet-driven) markets and recognizes the near-term bull-case for risk assets in such a dovish backdrop. Piepenburg reminds, however, that there is a massive difference between artificial market moves and Main Street realities. Toward this end, he provides an evidence-based/indicator-heavy case for a current recession and even harder landing to come.

Key to his outlook on risk assets, bond markets, recession projections, currency direction, precious metal pricing, crypto moves and even geopolitical direction is the open and obvious elephant in the room, namely: Absurd debt levels. Piepenburg explains how the ripple effects of mis-managed fiscal and monetary policies have made the debt trap easy to see, and from this debt trap, the consequences are equally easy to track.

The rapidly changing role of a weaponized USD in the wake of the Putin sanctions have had undeniable impacts on the world reserve currency, as commodity markets de-dollarize and the trade in oil and gold, in particular, moves slowly but openly away from the Dollar. Piepenburg carefully unpacks the arbitrage playing out today as money and gold moves East. He sees big shifts ahead in gold pricing as the Shanghai Gold Exchange gains greater momentum and as Saudi Arabia edges ever closer to its BRICS+ direction (and hence more oil moving away from the Greenback). Although impossible to time with precision, these geopolitical ripple effects are equally impossible to ignore as gold enters the opening chapters of an historical re-pricing.

Ultimately, Powell is losing control of his own narrative as debt pressures send rates and the USD lower and risk assets dangerously higher. In the end, of course, Uncle Sam’s debt is just too high to pay without more mouse-clicked (and hence debased) Dollars, which will serve as a further tailwind for gold.