Written by Border Gold     January 23, 2018

As the 2018 trading year gets into full swing, many markets are simply picking up where they left off the prior year. Stocks, in particular, continue to climb and seemingly rise each day with little effort. In fact, the stock bull market is a decade old at this point, and you have to wonder if the ease with which the market keeps ascending should be a cause for concern.

Stock market volatility remains stubbornly low, and investors may very well be feeling overly confident at this point. Although the market may not have yet reached a full-on state of euphoria, it could be getting close. Further gains in stocks may attract anyone left waiting on the sidelines for a significant pullback, as the pain of missing out on the rally becomes  too much to take. Once that point is reached (and it could be sooner rather than later), stocks could become extremely vulnerable to what could potentially be one of the greatest crashes of all time.

Recent strength in gold and silver would seemingly indicate that at least some investors are recognizing these risks, and are looking to take proactive steps in adding portfolio diversification for changing market dynamics that could be seen in the year ahead.

Of particular note is the fact that gold has, thus far, remained on the offensive in spite of rising treasury yields. A Federal Reserve official even suggested recently that the central bank may have to take more aggressive action to slow things down. New York Fed President William Dudley was quoted in an article from this past week, saying the Fed may have to “press harder on the brakes” in the next few years, potentially increasing the risk of a hard landing.

Mr. Dudley also discussed the recent tax legislation that was passed in the U.S., and was quoted as saying “While this does not seem to be a great concern to market participants today, the current fiscal path is unsustainable.” He added that projections from the Congressional Budget Office see debt servicing costs more than doubling by 2027.

Mr. Dudley’s comments highlight two major issues that could be a significant driver of higher gold in the years ahead, and the issue of exploding deficits and rising debt is likely to gain considerably more attention in 2018 and the years ahead.

The dollar has been moving lower, and the debt issue is without question a major driver of dollar weakness. The greenback is poised for further downside, and gold may potentially benefit from the weaker currency. Consumers may even begin to feel the pinch from a weaker currency, as purchasing power takes a hit and everyday goods and services become relatively more expensive. This may also boost interest in hard assets like gold, which may potentially offer a meaningful hedge against declining paper money values.

The potential for a stock market collapse or reversal, and rising debt are two of the major themes that could fuel a significant rally in gold and other hard assets. Both of these themes could be characterized as being unsustainable, and could lead to widespread market volatility and risk aversion.