Will The Massive Monthly US Trade Deficit Reports Be Reflected In The Price of Silver?

There has been a lot of recent attention focused upon the US debt, deficit, and debt limit. And while the US debt is a critical source of US dollar debasement, surprisingly little attention is being paid to the US trade deficit. This is in large part due to many economists argueing that the US trade deficit doesn't matter.

Here's the current situation according to the Council On Foreign Affairs, "The US dollar’s role as the global reserve currency and primary tool for global transactions means that many other countries rely on holding dollar reserves, creating massive demand for U.S. financial assets. This means that the U.S. pays little for its foreign borrowing, allowing it to finance its high consumption at low cost."

But since the BRIC countries and even Saudi Arabia have indicated a desire to reduce their dependence on the US dollar, the DXY (US dollar index) has been declining. And since the DXY does not include the currencies of any of the BRIC countries or Saudi Arabia, the actual decline of the US dollar may not be adequately reflected by this index (The U.S. Dollar Index contains six component currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc**).**

So in this enviroment of de-dollarization being bandied about and support for the petroyuan, I suspect that the era of the US trade deficit not mattering may be coming to an end. If China and other export oriented economies lose interest in recycling the dollars they obtain by supplying the US with goods into US treasuries, the trade deficit will matter.

In regard to how little the markets seem to judge that the US trade deficit matters, it may be illuminating to look at what has happened to the Comex price of silver on the days when the US monthly trade deficit has been reported. And given that the price of silver has been driven largely by moves in the DXY index, it would seem logical that if the trade deficit mattered to the markets, then the DXY would be down on days when the massive US trade deficit was in focus and that would lead to the Comex price of silver being up. But as shown below, this has not been the case:

US Trade Deficit Report by U.S. Bureau of Economic Analysis (Initial Report)

Report Date - 1/5/23 - November deficit - $61.5 billion - Comex price of silver - Open $23.94 - Close $23.37 Change - Down $0.57, -2.25%

Notably, this report was spun as being good news as the deficit declined from the previous month. Yikes, but I have trouble wrapping my mind around how a trade deficit of $61.5 can be good news

Report Date - 12/6/22 - October deficit - $77.8 billion - Comex price of silver - Open $22.43 - Close $22.34 Change - Down $0.10, 0.37%

Report Date - 11/3/22 - September deficit - $73.3 billion - Comex price of silver - Open $19.23 - Close $19.43 Change - Down $0.20, -0.84%

Report Date - 10/5/22 - August deficit - $67.4 billion - Comex price of silver - Open $21.13 - Close $20.68 Change - Down $0.58, -2.63%

Report Date - 9/2/22 - July deficit - $70.6 billion - Comex price of silver - Open $20.34 - Close $20.14 Change - Down $0.20, -1.1%

The fact that the daily price of silver has been down during the last 5 times when the US trade deficit has been reported seems to support a conclusion that at the very least the folks trading silver don't seem to think the US trade deficit matters. (you have to go all the way back to June '22 to find a month in which the price of silver went up on the day BEA reported the US trade deficit)

For reference, the December US trade deficit will be released on February 7, 2023. (please see update for more recent reports at bottom of post)

Regardless of whether the US trade deficit matters, the combination of the trade deficit, the US Government deficit, and de-dollarization will likely lead to further debasement of the US dollar.

It makes it understandable as to why US precious metal investors are protecting themselves from dollar debasement by acquiring gold and silver. My guess is that we will see record high gold and silver prices in the not too distant future.

4/7/23 Update

Report Date - 4/5/23 - February deficit - $70.5 billion - Comex price of silver - Open $25.18 - Close $25.04 Change - Down $0.14

Report Date - 3/8/23 - January deficit - $68.3 billion - Comex price of silver - Open $20.165 - Close $20.15 Change - Down $0.015

Report Date - 2/7/23 - December deficit - $67.4 billion - Comex price of silver - Open $22.50 - Close $22.38 Change - Down $0.12

How Long Until The Massive US Trade Deficit Crushes US Dollar And Becomes A Gold and Silver Tailwind?

The monthly US trade deficit will be reported tomorrow (1/5/23). And based on past results, as long as it comes in reasonably close to the forecast, it probably will not have much immediate impact on the price of silver. The median forecast is for it to be US$63 billion, down from the previous trade deficit of $78 billion. And of course this decrease can be spun as great news. But to paraphrase Everett Dirksen, $63 billion here, $63 billion there, and pretty soon you're talking about real money".

As long as the US dollar remains the world's "trusted" reserve currency, the trade deficit does not seem to be a concern of the markets. But if the US dollar starts getting dumped, the massive trade deficit is going to be ever harder to sustain. And the dual deficits of trade and US goverment spending are leading to ever greater dollar debasement

Thus, while based on recent results, it does not seem like the trade deficit is going to have much of a short term impact on the price of gold and silver, on a long term basis, it seems likely to be supportive of higher prices..

Trade Deficit By Year - 2017 thru 2020

• U.S. trade balance for 2020 was $651B, a 9.21% increase from 2019.

• U.S. trade balance for 2019 was $596B, a 0.01% increase from 2018.

• U.S. trade balance for 2018 was $596B, a 10.42% increase from 2017.

• U.S. trade balance for 2017 was $540B, a 6.65% increase from 2016.

Source - Macrotrends.net