Posted By Isaac Nuriani
As I sip my tea this morning, I find myself fascinated by a trio of really positive gold stories:
Gold is winning new fans (Bloomberg)
Gold: How to play the U.S. debt ceiling crisis? (Seeking Alpha)
No fake news here.
The gist of these articles is that gold prices have developed deep momentum, and that the risk of a government default is only accelerating that momentum.
The price story is compelling. For the week ending September 1, gold climbed 2 percent and settled around $1,330 per troy ounce. That’s its highest level since November 2016. Last week we were anticipating a breakthrough above the $1,300 level, and boy did we get it. Of course, we are nowhere near gold’s all-time high of $1,900 an ounce set in 2011, so there is plenty of upside potential.
One factor boosting gold is the slowing growth of the U.S. economy as indicated by disappointing job numbers and an uptick in unemployment. This reduces the expected number of Federal Reserve rate hikes this year and next, which weakens the dollar. Remember, high interest rates support the dollar, and gold normally moves opposite the dollar. With the prospect of steadying interest rates, the long-term strength of gold looks good.
Gold and Silver Prices Rise with Debt Ceiling Crisis
Then there is the prospect of movers and shakers in the Washington swamp failing to raise the debt ceiling, which could cause a catastrophic default on American debt that would likely send shockwaves across the globe. Now, we wouldn’t bet the farm that this financial Armageddon will occur, but if things do go south, you’ll be glad you own sizable gold holdings.
As Seeking Alpha points out, the run-up to the 2011 debt ceiling crisis saw gold spike 12 percent in the preceding month. With default looming as early as September 29, we may already be in the pre-crisis upswing. Personally, I think President Trump will handle the situation, but uncertainty exists as to whether Congress will get its act together on time. We shall see.
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