July 2025 - Week 5 Edition
The Dollar is Down 10% So Far in 2025… As I Predicted in January
In my first Metals Report of this year (January, Week 1), I wrote: "Bank of America estimates that the dollar is more than 20% overvalued. If the dollar sinks by even 10% in 2025, gold could easily score another 14% gain to $3,000, or in a best-case scenario, achieve a 25% gain to $3,300."
Well, the country has already eclipsed my "best case" prediction of $3,300 for the year; the dollar is down over 10% in the first half of 2025 and remains down 10%, despite a 3% rally in July. The U.S. Dollar Index peaked at 110 on January 13, 2025, and it has been trading under 100 since May 20th.
The dollar has fallen despite the fact that the U.S. Treasury is offering the most lucrative return for its bonds, more than any other major economy (listed below). In previous years, the dollar was strong due to this fact, as global investors sought a higher return in America’s strong, stable economy but annual federal deficits have become so large since 2020 that the U.S. Treasury is forced to stage more bond “auctions.” That means trillions more dollars in new debt each year and not as many foreign investors buying U.S. debt.
With the U.S. burdened by a $37 trillion federal debt (vs. a $30 trillion GDP), America has a debt-to-GDP ratio of 123%, second only (among developed nations) to Japan. America’s annual deficits are over 6% of GDP, or $1.8+ trillion. With federal interest rates averaging just 4%, then servicing $37 trillion in deficits costs American taxpayers $1.48 trillion per year. Since much of the federal debt is held at historic rates of 2% to 3%, the cost of servicing our debt this year is “only” $924 billion but that’s 17% of the federal budget, bigger than all National Defense costs. This is why President Donald Trump wants U.S. Federal Reserve Chairman Powell to lower interest rates. If we could lower current interest rates by just one percentage point, we could save $370 billion in interest costs.
Why President Trump Seems So Upset with Jerome Powell
Since we have this huge and growing national debt ballooning our deficit, President Trump is "at war" with the Fed.
First, a little history: Jerome Powell’s degree is in political science, not economics, and he went on to become a political lawyer, so you might call him the second most powerful politician in America today.
The current war of words between President Trump and Powell started out on the wrong foot back in 2018, when the new Fed Chairman kept raising rates during the fall of 2018. This helped fuel a mid-term election reversal in Congress. In November 2018, Republicans lost control of the House.
After nearly eight years of near-zero interest rates under President Obama – including four rounds of "quantitative easing" (high-volume money supply increases) – it was clear to many that the Fed loved Obama. Powell seemingly wanted him to succeed but as soon as Trump was elected in late 2016, the Fed started raising rates.
Although Powell is primarily responsible, he has accomplices in the 300+ PhD economists at the Fed, nearly all of them Democrats and Keynesians, who wanted to help Obama and subvert Trump. Since Powell is not an economist, he deferred to the army of political economists who surrounded him at the Fed and he and his team raised rates too many times.
Back in 2018, frequently when President Trump tweeted his frustrations with Powell, the Fed doubled down on its rate increases to show the President who had more power. The Fed raised rates four times in 2018, with the September increase flipping the November midterm elections and causing a market crash in December.
Later, the Fed began cutting interest rates in the fall of 2024. To some, it looked like a brazen attempt to boost Harris’ election chances last fall as the Fed made a surprise "supersized" 0.5% rate cut – but then failed to cut rates any further during Trump’s first six months in office. Powell keeps citing future inflation fears based on threatened tariffs but Trump’s first-term tariffs caused no inflation and the CPI inflation rates are at four-year lows in the first half of 2025. Fed Chairman Powell – who was previously fond of saying the Fed is "data dependent" – is no longer paying attention to the current data but fantasizing about future data. This runs 180 degrees opposite to his long-repeated mantra of not “looking ahead,” but relying only on current data.
As it turns out, there was no rate cut this week, but two voting Fed governors dissented from the consensus – a rare event. The metals were due for a rest or even a price correction after a rapid rise, but they should resume their rise after the Fed indicates that a rate cut is likely to occur in mid-September.
This marks the first time in 32 years in which there have been two or more dissents in the Fed vote on interest rates. That means at least two Board Governors are in touch with the people and perhaps with the President, too, and his desire for lower rates. The dissenters were Christopher Waller and Michelle Bowman. On March 25, 2025, President Trump nominated Michelle Bowman to succeed Michael Barr as Vice Chair for Supervision of the Board, and Christopher Waller was a Trump nominee for the Fed Board back in 2020, for a term lasting until 2030, so they both feel free to dispute a lame duck Fed chair.
Maybe Powell should focus on why renovations at the Federal Reserve building are $2.5 billion and overbudget by $660 million at this point.
Gold peaked at $3,430 on Tuesday, July 22nd and silver reached a peak of $39.32 on the same day. Platinum reached a high of $1,478, up over 60% for the year and palladium peaked at $1,415, up over 45%. The metals then corrected some, in anticipation of the Fed refusing, yet again, to cut interest rates. In the first 30 minutes after the news came out, gold, silver and stocks did not rise or fall but after the 2:30 pm (EDT) press conference began, gold dropped almost 1% and silver fell 2%, while stocks also fell almost 1%.
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