US budget deficit up in March
The US Treasury released the federal budget data for March on April 13. The US government posted a deficit of $53 billion for March, which is an increase of 43% from the same period last year. This brings the current fiscal year-to-date deficit to $439 billion.
Budget balance basics
A budget balance is the difference between what a country’s government takes in from taxes and other sources and what it spends. A budget deficit occurs when spending exceeds earnings.
When spending exceeds earnings, the government borrows money from its citizens as well as from foreign entities. If this debt accumulates, the value of its currency could decrease. The currency decreases due to concerns within the international community that the country won’t be able to repay its debt.
The budget deficit’s impact on US debt
Deficits continue to accumulate, adding to the US federal debt. The federal debt has exploded since 2008, but the situation is getting better, which should be positive for the US dollar. A strengthening US dollar usually leads to weaker gold prices.
This is negative for gold-backed ETFs such as the SPDR Gold Trust ETF (GLD). The deficit is also negative for stocks such as Goldcorp (GG), Royal Gold (RGLD), AngloGold Ashanti (AU), and Kinross Gold (KGC). It also hurts ETFs that invest in these stocks, such as the VanEck Vectors Gold Miners ETF (GDX). These companies form 19.8% of GDX’s holdings.