US deficit blew out in the early 2000s, sparking a major bear market for the USD

This was a catalyst for a major increase in price of gold, from US$250 in 2001 to a high of ~$2,000 a decade later: Jesse Felder

Yesterday’s ASX News Highlights: Ramelius Resources, Breaker Resources

Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.

Gold is ready for another dalliance with record territory as economic threats loom large.

Last week, the US Treasury reported that the federal deficit hit US$1.1 trillion in the first half of the fiscal year ending in March, US$432 billion larger than the same period a year earlier.

If history is any guide, this deteriorating fiscal trend should represent a structurally bearish influence for the US dollar in the months and years to come, says former hedge fund manager and publisher of The Felder Report, Jesse Felder.

“If history is any guide, the best protection against a deteriorating fiscal situation (mathematically guaranteed by rapidly growing social security and medicare spending) is gold,” he says.

The last time the deficit blew out like this in the early 2000s it sparked a major bear market for the USD. A feeble USD is generally good for gold.

“This was one of the primary catalysts for a major bull market in the price of gold which rose from a low of $250 in 2001 to a high of nearly $2,000 a decade later,” Felder says.

OANDA senior analyst Ed Moya agrees risk aversion is starting to run wild and safe-haven flows are once again coming gold’s way.

“Too many risks remain on the table and investors are going to need some safety going forward,” he says.

“Debt ceiling drama is around the corner, a couple months away, and as the risks to the outlook pile up, gold is starting to look even more attractive.

Gold has major resistance around the $2050 region, but if earnings and the outlooks continue to deteriorate, a record move could be eyed.”

‘Major resistance’ is an understatement. Gold has made aborted runs at US$2050 three times this month, falling short every time.

Gold was paying US$1985/oz at 7pm EST, Friday. Silver continued to outperform its cooler cousin, holding steady at US$25.11/oz.

ASX news highlights: Friday

Acquisitive WA gold miner Ramelius Resources (ASX:RMS) has now scooped up 33.26% of Breaker Resources (ASX:BRB) under its 1 RMS share for every 2.82 BRB shares offer, but appears exasperated by the holdouts.

It is now extending the offer period to Monday May 8 and urges “all remaining Breaker shareholders to accept the offer without delay”.

RMS says this is its final offer, and it won’t be increased unless $150m capped BRB receives a competing bid.

Originally, the implied value of the offer was $0.40 per BRB share or ~$130.7 million, based on a RMS share price of $1.127.

Both stocks have gained since then; BRB by 20%, RMS by 23%.

“On the date the Offer was initially made, the premiums to the undisturbed trading prices of Breaker were significant,” RMS says.

“Since the Offer the Ramelius share price has increased and as such the Offer for each Breaker share has increased accordingly.”

Source: Stock Head

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