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Terminal and the Bloomberg Business app. What has been happening to the gold price is not just unusual in terms of traditional economic and financial influences, it also goes beyond strict geopolitical influences. The capture a broader phenomenon which is building secular momentum. Mohammad joins us now for more. Mohammad, Welcome to the program sir, always looking forward to roundom out the week with you. This got a lot of attention in the Financial Times this week. Just take it
from the top four US. What are you trying to get people to pay attention to not just why the move is higher, but what is behind it and how long this has been building for.
And thanks for having me, John Lord. Gold is up thirty two percent year to date. That's compared to twenty two percent for the SMP. When we try to relate the moves in goal this year to the traditional economic and financial variables interest rates, inflation, the dollar, you know them, the relationships have broken down. It has been a very sort of linear move up and it's something that's continuing
for a while now. Then you ask the question who's buying and you start getting the answer that what is happening to gold goes well beyond economics and finance, goes well beyond the fluctuations dull politics. There's something secular going on and that has two elements. One is slow diversification away from the dollar in the reserves of central banks around the world, and the other one is a slow
diversification away from the dollar payment system. Now, the good news for the US is both are slow because you cannot replace something with nothing. People are still building alternatives. The bad news is that the momentum is building up. So this is something that people have to take seriously in the US if they want to maintain the influence that the US has.
Globally, Mohamma, do you think this is a fairly recent trend or something that's been building for a number of years, maybe even decades.
It's multi year, but it's been accelerated recently by two events. So it's multi year because there has been some questioning about the US being a good steward of the global system. The global financial crisis was the first shock. The weaponization of trade and investment was a second shock. The way the US treated inflation was a third shock. So there's been questions built, and we've seen little pipes being institutions, payments system. But then there's been two more frequent, more
recent events that have accelerated that. One is Russia being able to continue to trade and grow while being kicked out of Swift. That has gotten a lot of people paying attention. How did Russia do this? And of course the answer is they built a very clunky system that involves four other countries, but it works and they avoid
the dollar completely. That's first of all. Second development is what's been happening in the least where the majority of countries around the world have viewed the US as an inconsistent backer of human rights and an inconsistent back of international law. So you've had those two recent developments that have accelerated something that's been in play for a while.
Mom, and I'm glad you mentioned what's going on with Russia. John and I spoke to Deleep Singing yesterday, Biden's Deputy National Security Advisor for International Economics, and we asked him this, what do you say to those that say sanctions don't work, they just create new markets? And his response is, well, what's your alternative? You have to do something. I guess the question is what is the alternative?
So that's a really hard question, and Marie, there is no easy alternative. I think if you look back, those who impose those sanctions now wish they had gone far further straight away, that this slowgmentation of sanction has given Russia enormous time to build alternative systems. That if you're serious about sanctions, then you should be willing to absorb the cost of sanctions to you, and that's something that
neither Europe nor the US was willing to do. Initially, that were very worried about the blowback in terms of oil prices in particular, But looking back now, I suspect that they wish that they had gone further initially.
Well, that's part of the problem when a lot of critics of this White House is why have a price cap, just sanction the actual oil and gas and cut off the funds that Putin is using to continue to wage this war. Putin is hosting the Brick Summit. He says, it's now a multi multipolar world is emerging. Do you agree?
So? Certainly the Bridge submit is involving more countries and more heads of state. But to jump from there to say a multi multipolar world, that's way too far. It is still at a very very early stage. It's going to be very hard to get them to unite around certain issues. So we should pay attention. I think if you want to worry about a multipolar world, you worry about China. China is creating institutions. The US is not part of the Asian Infrastructure Investment Bank, and that institution
is growing and it's collaborating with the World Bank. China is building little pipes around the system fifty by later of payments agreement with other countries that completely exclude the dollar. So if you're looking at the alternative architecture, pay attention to China. Now, I want to stress there is no other current to replace the dollar at the core of the system, and there's no other payment system to replace
the dollar payment system. But you can build pipes around it, and that's what starts fragmenting the system.
And as we know, China has been buying a lot of gold. So Mohammed, let's bring it home a little bit. We've talked a lot about international forces, let's talk about domestic once.
The US deficit.
Now, if you look at traditional financial indicators like the treasury market and foreign exchange treasuries, we are seeing higher yields. But what we're not seeing in the FX market is a week of dollar. We're not seeing a week of dollar. And some people might suggest that that's not a real worry about the deficit. Then no real side of a bias strike away from dollar denominated assets. You're not seeing the Euro, the yen, or the Chinese. You runt much
stronger off the back of this. Now, some people might push back and go back to your story, Mohammed and say, actually, you are seeing the dollar depreciate, You're seeing depreciate against gold. Mohammad, can you share your thoughts with us about whether we are starting to see some concerns creep in about the US deficit into financial markets.
First, let's start with currencies. Currencies are relative prices, so you would not pick up concern about the US deficit because other countries have their own debt and deficit problems. You know. I go back to this notion the US is the cleanest dirty shirt, So you will not pick up in the currency in the relative price. So you have to look at an absolute price. And that's why people competit dollar to gold. Gold is a store of value. Gold is not really a currency or unit of account.
It is a store of value. And people look at that and say, well, relative to gold, the dollar is depreciating. Now, why is it doing this. I talk a little bit about that, but it's not just the impact of the debt. I mean the impact of the debt is making people wonder about how over the very long term. I want to stress the credit worthiness of the US bond yield levels are now being impacted on by four things, and you pay. No one has been able to tell what
it is. One is US economic exceptionalism. We are simply growing better. Look at the recent IMF revisions, US up in terms of growth rate. Second thing is the WE calibration, although I hate that word, the WE calibration of expectations for the FED and the question mark as to what's fifty basis points in September in October a mistake. The third issue is the debt, and the fourth issue has to do with the overall sort of confidence in there. No one's been able to tell me John, with any
degree of confidence the relative weight of the four. So yes, that may be an issue, but I'm not sure how big it is.
Muhammad, you forgot one provision. One topic the US presidential election. Is that impacting gold right now? Is that impacting bond yield right now?
So certain people feel it's impacting bond yields and they throw it in there, and then you ask, how is it impacting bond yield exactly? Is it the tariffs? Is it industrial policy? What exactly is playing out in there? And then it's hard to answer. So I'll add it if you want to the list. But I suspect that that the coefficient on that is not as high as coefficient on some other things, particularly US economic exceptionalism and FED policy.
Mohammed. Just a final word, Yankees or Dudgers. That's so we want to know.
And movie sitting right next to you, and she has a she has a wonderful New York Yankees cup on there. I told I told her in an earlier thing that for the first time ever, I may be thinking of abandoning the National League.
Mohammed Dalarian, Big cold there, Mohammed of Queen's College, Cambridge. Tamala Harris and Donald Trump heading deeper into their oppositions backyard and the penultimate week of the election race, Trump gearing out for a rally over the weekend of Madison Square Garden, with Harris heading to Houston, Texas, as both candidates look to grab attention in the last few days
of the campaign. At mos of Raymond James writing, the recent shift in sentiment and polling appears to favor former President Donald Trump, but given the surprise results of recent elections, we continue to view the presidential election as a US up at John des now for more and welcome back to the program sir. Let's talk about this trend of going against your all positions backyard. How powerful do you think that effort is?
So, John, I think it's an important way of trying to nationalize the race in the final days here. Going to Texas gives an opportunity to give the Senate candidate that is challenging Ted Cruz Allrad a boost of support, but it also gives an opportunity for Kamala Harris to talk about abortion. We're going to see her next week on the National Mall. She is in the early stage of making that closing argument. For former President Donald Trump. What we're going to see is the stadium tour trying
to show that his movement is truly national. So we have had a range on the swing states, but in the closing days here, I do think you try to nationalize the race, make that closing arguments, and try to have that attention in all states and try to see if you can go on the offensive. See if there's some state that doesn't seem to be on anyone's map right.
Now that could flip.
We saw that in twenty sixteen, we saw that in twenty twenty.
Will we see that again here.
In twenty four For Kamala Harris, Houston makes sense because she's going to be joined by Beyonce, and as you say, she wants to talk with this issue of reproductive rights. Is one of the states that has one of the most stringent abortion roles in the country. But why is Donald Trump once again in New York. He was in the Bronx earlier this year. He was just in Nasau County. Why the Garden.
Well, you know, there are a number of things about the Trump campaign that I would not always say this is a traditional campaign. I do think he does want to have this rally at some of these major kind of venues, showing that there's enthusiasm. And I think part of what they tried to have from the Trump campaign is saying that this is a movement that's national and even though there are some states that they are exceptionally
unlikely to win, there is a strong basis support. New York is also critical for the race for the House of Representatives. We look at New York, we look at California. There are eight Republicans in toss ups districts. If Harris is able to mobilize her base, she's probably going to see the Democrats win control of the House of Representatives. If Donald Trump is able to stabilize and kind of get his base out on Long Island in some of the close in suburb districts.
In New York.
Maybe a couple of those Republicans hang on. Maybe Republicans hang on to their House majority.
And you mentioned the Texas Senate race. This is Ted Cruz, a seat that he is defending. This morning. I was looking at polling. It's Republican backed, but they do some good polling the Senate Opportunity Fund. They now have Nevada Rosen and Brown tied. What are you seeing in some of the down ballot ticket races.
They're really really close, And I think what we have seen in Nevada is a consistent lead for Senator Rosen throughout this cycle, but with the early voting coming in Nevada, there's been a tilt to Republicans at least that's what the non priorcs and prognosticators out there and some of the press that do a great job in Nevada kind of following that. So they're seeing a tight, maybe slight lead for Donald Trump in Nevada.
So investing a little bit.
More seeing if Sam Brown, the Republican contender, can maybe catch that seat, even though he's been down the whole cycle. At this part of the game, it is also a bit of a chess match between these campaign committees. Making a couple million dollar investment in one seat is trying to get that last push from donors to say, oh, we're on the offense. People like to be with the link winning team, and so the more you're on the offensive going into the final stretch, the more you can get your.
Donors to pony up.
Donors don't like to give money if they think the campaign's losing. And so again, it's probably part of a national strategy by both the senatorial campaign arms the Republican and Democrats to say that there is an offensive opportunity. Is it for Texas for Democrats? Is it for Nevada for Republicans? Some of this is a little bit of bluffing at this point, But we have to wait to election day to see whose bets were actually the correct bet to make.
And let's talk about that. How long it's going to take to actually find out the answer to some of the questions we have. One thing we know is that it will take a long time to count some of these votes. Ed, what are you telling clients about when you expect to actually see a result to this election?
So, John, my hope.
For this election and my hope for the markets is that what we've gone back and we've looked at many past elections and what we're at fifth fifty in the presidential race, and we look at a number of these.
Cases in the Senate where those are kind.
Of toss up, which implies fifty to fifty, they tend to all break in one direction. And so if we do have seven swing states, we could see it break five to two six ' one in the end. And if we are seeing that break in that direction, we will know probably early on kind of Wednesday morning after the election, kind of largely who's won. If it comes down to one state, that could be a week, that could be a couple a month or more before we know who that is. I don't want to have that happen.
Pennsylvania was called Saturday after the election.
Nevadom was called Saturday after the election.
It was sixteen days before North Carolina was called in the twenty twenty election. I don't want to be waiting sixteen days. So my hope is that we do have a decisive break on election day. It will be pretty clear election night, if not early Wednesday morning.
And the most important county in Arizona Maricopa County. Their officials are saying it could take ten to thirteen days. What if this comes down to Arizona.
Well, that's the deciding factor. Where it's like we did look back into twenty twenty. We put out a note. A number of clients at Raymond James have been asking us when will we know?
So we'd get a chart of every single.
State that we got the calls, and it was interesting that most of the kind of swing states that are being discussed this year were called Saturday or after the election. My gut tells me that we probably will have a clear kind of direction on election night, if not early on Wednesday, it probably will take until a week or more for the final certification of these results.
We just don't want to be back in the two thousand.
Land where it gets litigated or we have election denial two point zero because we have different vote counting methods which kind of will favor one candidate early versus the other.
There are bloom states, there are rad mirage states.
Is there any concern that it might take days for some of the down ballot seats.
Yeah, I mean, I think we could be in a scenario if it's a very close House or representative race. New York and California, as I mentioned, are two states that could determine the outcome of this majority in the House of Representatives. New York and California are really slow to count votes, especially on absentee ballots, and so they're not normally swing states. They're not going to be swing states at the presidential level, so they don't get the attention.
But on some primaries where they have gone into kind of a very close final count, it's been weeks at times before we know the final result of some of those House races. It's arguably unacceptable, but that's just the reality of the way their systems are set up. So we probably know kind of the result of the presidential election before we know the results of the final House and Senate races for twenty twenty four.
Here and we all agree with you. The fact that this has been such an issue for such a long time and still hasn't been addressed is unacceptable, and thank you, sir. At most of Raymond James there don't get around of table. Sonny meskit A ups, Sonny, good morning. It's got to see you just had a conversation with definitely about payrolls next week, base case for her seventy k if you've got a base case, and how difficult is it to just pick a number at the sky and roll with it for next week?
So tough. And we've talked about this before actually on this program specifically, the report that we got last time was probably the last clean report for the year given all these hurricane effects and such. And Waller came out recently and said, look, this next report can be down by one hundred cage as from the weather effects. So we just think that the Fed is going to have to look through this one off weather impact, as horrible as it is for the unity is that are impacted.
And actually know this treasury market has been doing much of the same thing, lening on retail sales, upside surprise, jobless claims back to pre hurricane levels. We've set that repeatedly through this morning, and we've had a move on a ten uere of something like fifty to sixty banks Is points since the Fed cut interest rates by fifty Banks's points. What's driving treasuries now right now for you?
Because the debate we've had on this program, data or politics, politics or data, a mix of the two or one or the other.
We think, look, it's three things driving rates right now. Uncertainty around inflation, uncertainty around years from growth, with the fiscal trajectory is from both candidates, and the broader fiscal trajectory of the United States that may potentially come more into a focus as we near the election. All speed to.
Political strategists who say the proposals don on Trump has right now and he's putting out there is worse for the deficit. You don't think that's true. You think both camps are pretty bad for the deficit.
Well, so we actually differ a bit from consensus here. We've done some modeling around this, and we think that Kamala here would probably extend the deficit by about two trillion, whereas Trump would extend the deficit by just over four trillion.
In the grand scheme of things in the wall of the entitlements that are coming more and more into focus for the markets, and also the TCGA extension and then the immigration policies that would impact the labor market and therefore inflation and growth, we think that those differences are actually not the biggest.
So do you find it odd that the bond market is pricing in Trump, Well, we think that.
You know, over the weekend, for example, we saw him improving the polls, and historically Trump has done a bit better in elections than polls have shown, so it's not exactly unusual that the market is giving him more credence right now.
Do you think we're WoT priced for it in the treasury market? Because we've gone back and forth on this a lot. There is a massive difference between a Trump presidency and a full GOP sweep. And I've heard from the likes of Bemos in Lincoln who suggested that outside of a GOP sweep, it's difficult to see ten year treasury yields anywhere between twenty thirty forty fifty basis points higher from here. How our price do you think we are for eather scenario at the moment?
Well, we think that fundamentally, if we start pricing in a wide deficit like seven percent of GDP going forward while we're growing at say, at trend of nominal four percent GDP, if this is not a good trajectory, this is going to drive the term premium up in and of its zone, right, and there's going to be a
crowding out effect in terms of growth. Then on top of it, we have the debt ceiling coming up, which can be punted further by Congress, for example, in the next year, but increases uncertainty therefore for businesses and households. So there's lots going on in the treasury market right now.
When you rank twenty twenty five, and the concerns is it deat ceiling, TCGA, then tariffs what gives you most the cost for concern?
Well, the tariff scenario is actually very interesting scenario because tariffs only on China would actually not in our modeling, have as big of an impact on the US economy specifically as all our terror Why well, because all our tariffs would be there would be much less of a substitution affecting more potential retaliation from the trading partners. So it's a really a sexflationary environment and that would be quite impactful.
But wouldn't China retaliate?
China would, but they're a smaller portion now of our economy. The interaction with them was a smaller portion of our economy than pre COVID. There's been a lot of a substitution effect already.
We know how much this would hit Europe and we've started to see a big divergence, a gap open up between the German tenure and the US tenure as well. Are you expected some form of divergence Street twenty twenty five between the US and Europe across growth, across rates, across central bank policy.
Well, we've had some divergence already, right, Other central banks have started easing a lot earlier than we have, and that we've had stronger growth. I think one of the differences that we do see going forward potentially is what happens with inflation, because we see inflation actually surprising to the upside into the first quarter of next year, and whether this happens in Europe or not, for example, is
a different story. We also think, interestingly that part of the decline in inflation globally has been not necessarily the central bank phenomenon. So that means that it's actually more difficult for central banks to control if we see upside surprises as well.
It's a really really important final point. Sondra is great to see you, Sonya Mskin of UBS. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can Watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.