Gold To Rise On $14.3 Trillion U.S. Debt Limit Increase – Bloomberg Chart of the Day

Tyler Durden's picture

From Gold Core

Gold to Rise on $14.3 Trillion U.S. Debt Limit Increase– Bloomberg Chart of the Day

Gold is flat in U.S. dollars and New Zealand dollars but marginally lower in most currencies today as increased risk appetite has seen risk assets rally despite poor fundamentals. Most Asian indices were higher, except the Chinese and Indian markets, and European indices have also risen.

Gold is trading at USD 1,587.00, EUR 1,116.1, GBP 983.50 and CHF 1,302.10 per ounce

Bloomberg Chart of the Day from Korea Investment

Respite has also been seen in Eurozone debt markets with bond yields falling. Rumours of ECB intervention through peripheral bond buying have helped steady things but the ECB has not given any indication that it is supporting vulnerable European sovereign debt markets.

For now markets appear more interested in Apple’s massive profits than Uncle Sam’s massive debts.

Cross Currency Rates

The Republican controlled U.S. House, defying a veto threat, voted last night (234-190) to slice federal spending by $6 trillion and require a constitutional amendment for a balanced budget to be sent to the states in exchange for averting a threatened Aug. 2 government default.

Treasury Secretary Timothy Geithner has said the government will run out of options to prevent a default by August 2 – in 13 days time.

Standard & Poor’s Ratings Services and Moody’s Investors Service have said they are likely to downgrade the U.S.’s credit rating if Congress doesn’t act.

An increase in the $14.3 trillion U.S. debt ceiling is inevitable and is a question of when rather than if.

The Bloomberg Chart of the Day (see above) shows how gold in dollars is correlated with increases in the U.S.’s debt limit, particularly in the last 10 years.

Bloomberg Composite Gold Inflation Adjusted Spot Price – 1970-2011

Julia Yoo, a Seoul-based analyst at Korea Investment told Bloomberg that “gold’s rally is quite explosive.”

“Increasing the debt limit means you print more dollars, which will weaken the dollar and consequently lift the gold price,” adding to gains this year that were driven by demand from countries including China.”

Gold is 12% higher in dollar terms so far in 2011 and is the best performing currency in the world in the last 12 months.

Gold has risen 33% against the U.S. dollar over the past year, outpacing all of the more than 150 currencies tracked by Bloomberg.

United States Debt Ceiling 1940-2011

However, over the long term gold remains undervalued or at worst fairly valued.

Admittedly, gold has risen by nearly 6.5 times in the last 11 years.
However, in the last bull market in the 1970’s, gold rose 24 times from $35/oz to over $850/oz in 9 years.  Gold remains well below its 1980 record high of $2,400/oz when adjusted for inflation.

The macroeconomic conditions today are even more conducive to gold than they were in the 1970’s.

Most industrial nations such as the US, Japan, Germany etc were creditor nations in the 1970’s.
Today they are debtor nations with the US the largest debtor nation the world has ever seen. The fiscal situation in the US is appalling and deteriorating – with a National Debt of nearly $14.5 trillion and unfunded government liabilities of between $60 trillion and $100 trillion.

As long ago as 2003 we said that this inflation adjusted high price from 1980 would likely be reached and surpassed. We said that at that stage gold could be in a bubble and it would be time to reduce allocations while keeping a core financial insurance holding in gold.

In 2005, we said that the growing property bubbles in the UK, the U.S. and the massive debt levels in the western world (household, mortgage debt and in the banking system) would likely lead to a deterioration in government balance sheets and sovereign debt crises which in turn could lead to currency crises.

We are entering the late intermediate to final stage of this process and the real risk of a currency crises in any one of the major fiat currencies rises by the day.

NEWS

Gold inches up on light buying; Europe debt fears persist
http://www.reuters.com/article/2011/07/20/businesspro-us-markets-precious-idUSTRE7592IU20110720

Record Gold Price Fails to Deter Buying in India, Jeweler Says
http://www.bloomberg.com/news/2011-07-20/record-gold-price-fails-to-deter-buying-in-india-jeweler-says.html

Retail gold buyers in UAE spot booking purchases to beat price rises
http://www.emirates247.com/business/retail-gold-buyers-in-uae-spot-booking-purchases-to-beat-price-rises-2011-07-20-1.408809

More gold found in Sathya Sai Baba's cupboards
http://www.starnews.in/india/34-more/13597-more-gold-found-in-sathya-sais-cupboards

COMMENTARY

How to Make Sense of the Gold-to-Silver Ratio - Silver Catching Up to Do – Myra Saefong
http://www.marketwatch.com/story/how-to-make-sense-of-the-gold-to-silver-ratio-2011-07-19

Gold price floor to remain above $1000 for at least the next decade -Jeff Christian
http://www.mineweb.com/mineweb/view/mineweb/en/page96985?oid=131881&sn=2010+Detail&pid=102055

Matt Badiali: The Case for Gold Price Manipulation
http://www.theaureport.com/pub/na/10268

Exposing China's Mysterious Multi-Trillion Shadow Banking System
http://www.zerohedge.com/article/exposing-chinas-mysterious-multi-trillion-shadow-banking-system

Time For Tim Geithner's Annual Top-Ticking Op-Ed, In Which We Learn That It Is Time To Panic About America's Banks
http://www.zerohedge.com/article/time-tim-geithners-annual-op-ed-which-we-learn-it-time-panic-about-americas-banking-sector

Gene Arensberg: Are the big gold and silver shorts being overrun?
http://www.gotgoldreport.com/2011/07/recent-comex-commercial-opposition-to-gold-silver-prices-overrun.html

Why decline of the euro is good for gold – and for Switzerland
http://www.independent.co.uk/news/business/news/why-decline-of-the-euro-is-good-for-gold-ndash-and-for-switzerland-2317176.html

Is Silver Still a Good Investment Option?
http://www.commodityonline.com/news/Is-silver-still-a-good-investment-option-40871-3-1.html

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Gordon Freeman's picture

So I've got that going for me--which is nice...

GetZeeGold's picture

 

Be the Ball.....GUNGA GALUNGA!

The Lama has left the building.....out the back door....as usual.

http://www.youtube.com/watch?v=LSawRbeTjkY

Looks like we're making 14 dollars the hard asset way.

So I've got that going for me--which is nice...

 

JW n FL's picture
by Gordon Freeman
on Wed, 07/20/2011 - 07:09
#1473115

So I've got that going for me--which is nice...

 

*****************************************************

 

http://www.youtube.com/watch?v=8x-nQ-vPw5k&feature=related

 

http://www.youtube.com/watch?v=etpHKueh6S0

 

and for our gun tip of the day!!

http://www.youtube.com/watch?v=ytM_2PG6joU

 

GeneMarchbanks's picture

$1800 after the "ceiling" is raised for King Ponzi.

equity_momo's picture

We will have escape velocity after this debt ceiling gets raised. And once QE is confirmed again , gold breaks 1700 quickly  then 1800 and then you'll see the sheep take note as it approaches 2k.  But there will be very little physical for sale (the old adage of higher prices cure tight supply will not work for Gold. Buying will beget buying as trust in all things paper is lost)and premiums are going to widen dramatically.

We are close now. I hope you're all ready.

SWRichmond's picture

A friend asked me yesterday "You're not stll buying at THESE prices, are you?  This sucker has a long way to run.

El Viejo's picture

But Ben says it will be different this time. (He may actually mean it) No QE unless growth less than 2% . I think he's feeling a little guilty about the starving and dying in the Middle East and now in China.

equity_momo's picture

real growth has been below 2% for a long time. soon nominal growth will also dip below that as the Govn and the Fed realize the corner they have painted themselves in.   GDP is going to plummet and take risk assets with it , but not gold this time.  The reaction will be obvious: print. And then rinse/repeat the last 2 years but i think the stick save will only last 6 months next time.

El Viejo's picture

Ha! When has the govt ever used real numbers?

Indo-China effect may now be the driving force for Gold.

(It's a global village now.) (with discretionary income)

Sorry this post was for Gold below. I got cornfused.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Crack up Boom per Mises:

 

This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.

Tuco Benedicto Pacifico Juan Maria Ramirez

Frog-And-Toad's picture

What a fantastic quote... I literally just sent this to 5 people I have had heated debates over what is happening concerning our fiat system, as they believe everything is alright as stock prices have increased. Thank you for this.

 

+1

DosZap's picture

equity,

I do not think the Sheeple of the last two Generations GET IT.

Of course the ZH one's do,but as a WHOLE, they are not paying attention, were never taught to observe these types of issues.And, frankly could care less(until they get gored).

The prices going up, will not RING ANY BELLS for them.

It WILL NOT COMPUTE.

When the SHTF, they will be the Lemmings off the cliff, as will the very elderly, on fixed incomes.

equity_momo's picture

Very true.

I spoke to some old colleagues recently .

They always thought me crazy post 08 in urging them into gold around 8 or 900. I said i wish i knew what i did then all the way back after the tech blow up as id be long gold from 3-400.

Gold is now 1600. They still havent bought any and still think im a little crazy. I doubt Gold 2k will change their views.

Ho-hum.

DosZap's picture

equity,

I do not think the Sheeple of the last two Generations GET IT.

Of course the ZH one's do,but as a WHOLE, they are not paying attention, were never taught to observe these types of issues.And, frankly could care less(until they get gored).

The prices going up, will not RING ANY BELLS for them.

It WILL NOT COMPUTE.

When the SHTF, they will be the Lemmings off the cliff, as will the very elderly, on fixed incomes.

Hugh_Jorgan's picture

You're right, they don't and won't get it until they can't buy their food from the grocery store on a regular basis. At that point it could be too late.

 

On the other hand, for those of us with a clue we might want to be armed against these people who will likely be hysterical and feeling like they have nothing to lose. Just sayin'...

unky's picture

if you look very carefully at the diagram you can see that most of the times there was a significant drop in gold prices directly after the debt ceiling increase.

slaughterer's picture

Immediate reaction of PMs are to drop after a debt ceiling rise.  But long term the debt ceiling rise pushes PMs up.  

Version 7's picture

Good point. Notice also that trend stops around 2006.

Gordon Freeman's picture

I think that happened yesterday.  Maybe that was it...

El Viejo's picture

Vector 1  =  Buy on rumor(fact in this case) Sell on news.

Vector 2  =  Typical August Dip in Gold Then shoot the moon till Jan'12

DosZap's picture

Vector 3 = This is not like any August in the History of the USA.

Chunk Typical OUT the window.

Version 7's picture

Admitting that the US debt ceiling continues to go parabolic, so we have it for gold.

Freewheelin Franklin's picture

No, no, no. Debt is good. Debt creates currency. Actually, debt is currency. The more currency that there is, the richer the country is. More money = more wealth. I know, because Pauly Krugnuts said so. Something about the "multiplier effect".

 

Hahaha. I just found out that I was blocked by Krugnut's FB page.

FEDbuster's picture

And of course this instant classic interview of Congressman Pete Stark for the debt=wealth crowd:

http://www.youtube.com/watch?v=UjbPZAMked0&feature=channel_video_title

pops's picture

After watching that video, I just had to watch another one....this one.

http://www.youtube.com/watch?v=8JHD8QuuWpE&feature=fvwrel

Priceless stuff.  Not the subject matter (although it's important) but the closed captioning.  It was hilarious.  Where do they get the people to do this?

Watch it without anything in your mouth and read the bottom.  You'll love it.

 

DosZap's picture

Free,

The reason we have not seen Inflation taking WAY off,is the fact Bernak is NOT printing any currency.

Just entries in a computer,

Sooner or later, he or whoever has his Job, will have to actually PRINT.

When that happens, look out.

youngman's picture

That is because the press spews that the world is saved because we raised our debt ceiling....when the truth is the country and the dollar just got weaker because of it....bad press..easy Economics..just like yesteray....it looked like a deal was close..so the fear trade was OFF...but it should be ON

Al Gorerhythm's picture

Gold is flat in U.S. dollars and New Zealand dollars but marginally lower in most currencies today as increased risk appetite has seen risk assets rally  ...... despite poor fundamentals.

It's all makes so much sense. 

cossack55's picture

fundamentals are transitory.

Al Gorerhythm's picture

And now, taking centre stage, supporting the fundamentals with scintillating insights, is the classic gold top caller, Mr 100:1 himself, Mr. Jeffery Christian of CPM Group with his latest call (Cue drum roll) ......... Ta Daaahhh! "Gold to maintain $1000.00 floor for the next decade".

Mr. Christian!

Mr. Christian?

Mr. Christian seems to be late. Again.

Priceless.

GeneMarchbanks's picture

I noticed this also. Jeff Christian has to be the biggest clown in the PM analcysts game. Or Nadler.

oddjob's picture

My vote goes to Gartman, he will continue to sell half his gold forever.

GetZeeGold's picture

 

Heh heh.......Mr. Christian has left the building...out the back door.....as usual.

How bad is it when the whole world knows you're dirty and makes fun of you?

 

GoinFawr's picture

Hey, that's just not true. Kid Dynamite thinks he's great!

Oh regional Indian's picture

Gold will rise. In dollears.

When there is no more dollear, it will sink in Ameros.

What will silver do? That is the bigger question.

While everyone splits hair on Gold's role (perhaps even Silver), we might, in these ever new times, an altogether new store of value. The even bigger question is, what will that be? 

Think.... it's all about value in the coming times.

ORI

http://aadivaahan.wordpress.com/2010/07/24/value-vs-price/

cossack55's picture

Easy. Brass, lead and some copper.

OBTW, either you erred in spelling dollars or you were correct in your spelling, pointing out that dollears do in fact hold more value than dollars.

Oh regional Indian's picture

On purpose Coss. ;-) And I'm thinking beyond the survival paradigm here!

ORI

equity_momo's picture

Thats easy Ori.  Energy.   Whether thats calories you put in your mouth or gas you put in your car or electricity you get when you flick a switch.

Whatever new currency is created will need to be backed by gold and energy. Currently the dollar is only backed by energy and we have the US Military to thank for that. There will be no new currency unless the US Military decide to back it. Before the dollar falls be prepared for some major carpet bombing.

Oh regional Indian's picture

Ah, but there is a big assumption on yoru part that the US military is going to be a force into the coming paradigm as well.

I would not assume that for anything more than the short term (year or a bit at most).
Then we all fall down together and wake to this new paradigm.

Energy indeed, but not newtonian or amperic either.
ORI

Tortfeasor's picture

Methinks you underestimate the raw power of the US military.  It is stretched and weary, but when mobilized outright it is a dramatic force.  Even with Afghanistan and Iraq, we have not seen the total power that can be unleashed on the world.  Like the waters of a dammed up lake...break the dam (the government control of the military) and beware the flood.

DaveyJones's picture

True but you sound a little roman. And isn't all money a symbol for energy or work

equity_momo's picture

I agree with Nial Ferguson , in his book Colossus , when he argues the point that the US Superpower provides a status quo of sorts. Throughout the ages Empires have created order - regardless if you think thats good or bad- but without one we create a vacuum and i doubt that is good for anyone. History suggests a power vacuum causes more imbalances and chaos.

I see no alternative to paper defaults and war. The US Military will fight to keep order until there is an obvious competitor to take over.   I do wonder why Americans get angry at military spending and Middle Eastern wars. They dont seem to realize what the alternative is.

 

FEDbuster's picture

Don't you think that those whom have grown tired of the US control (via the US military) might be sensing an opportunity at this point in time?  I think there are some major forces in the world willing to "test" the US military's resolve to back the dollar.  Only time will tell.

equity_momo's picture

I think possibly they are yes. But its David v Goliath.  I dont see a parallel in history to what we are going through until you get back to the Roman Empire.  Essentially Rome defeated itself as wil the US.

 

The Romans shifted their power base to Constantinople. I wonder where the new DC will become. Sydney? 

Once the US can no longer afford to project outward power to secure energy resources its Dark Ages II.

 

DaveyJones's picture

It's David(s) and Goliath. Good posts