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$12 Trillion U.S. Default Risk - Dollar Decline, Gold To Rise As History Repeats

GoldCore's picture




 

Today’s AM fix was USD 1,321.00, EUR 973.18 and GBP 821.82 per ounce.
Yesterday’s AM fix was USD 1,311.00, EUR 965.11 and GBP 816.26 per ounce.

Gold climbed $11.80 or 0.9% yesterday, closing at $1,322.40/oz. Silver soared $0.65 or 3% closing at $22.33. Platinum climbed $15.89 or 1.2% to $1,396.49/oz, while palladium rose $2.47 or 0.4% to $699.47/oz.

Gold is being supported as the U.S. government shutdown that continues with no end in sight and the deadline to raise the national debt ceiling looms, burnishing gold's safe haven appeal.

Prices also found support from China, which reopened after a week-long National Day holiday. 

Asian demand and Chinese demand in particular remain robust. China’s August gold imports from Hong Kong were a strong 131,423.7 kilograms, the Hong Kong government announced today and dealers in Hong Kong said they were seeing good buying interest from China. 


Gold and the US Dollar Index - 5 Years - (Bloomberg Industries)

The October 17 deadline to raise the $16.7 trillion debt limit is approaching fast and concerns about an unprecedented default have been expressed by well known and politically connected investors including Warren Buffett.

A default would be a global financial disaster of a scale even bigger than that of the Lehman Brothers collapse and subsequent financial and economic crises.  

The $12 trillion of outstanding government debt is 23 times the $517 billion Lehman owed when it filed for bankruptcy on September 15, 2008.

Some fear that it would be an economic calamity like none the world has ever seen and the likes of Buffett have warned that going over the edge would be catastrophic.

The uncertainty around the debt ceiling will put paid to nonsense talk regarding the Federal Reserve ‘tapering’ any time soon. This should also contribute to higher gold prices.  


Gold Prices Fixes Rates Vols - (Bloomberg)

In the last 20 years, there have been only six instances of both the U.S. dollar and gold falling more than 3.5% in a 30 day period. A decline of 3% or more in the DXY (the trade-weighted dollar index) has historically led to higher gold prices, given that gold is commonly priced globally in dollars and dollar weakness often leads to safe haven demand for gold. 

The dollar has fallen slightly recently with the decision not to taper, the government shutdown and the debt ceiling debate. Investors seemingly are not choosing the safe haven of gold, thus far. 


Gold in USD, 1 Year with Support and Resistance - (Bloomberg)

This is due to concerns about recent counterintuitive price movements and what appears to be price capping at key technical levels. There are still concerns that there may be further price falls in the short term and this uncertain short term outlook is deterring many buyers, especially in western markets. 

The appalling fiscal and monetary situation in the U.S. will lead to further dollar weakness in the coming  months. This weakness will be most manifest versus gold as other fiat currencies have their own risks. 

In these uncertain times, all owners of gold and those considering owning gold should acquaint themselves with the most appropriate storage options for their own particular circumstances.

Our How To Store Gold Bullion - The Seven Key Must Haves is a must read in this regard

 

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Tue, 10/08/2013 - 11:13 | 4033865 SnatchnGrab
SnatchnGrab's picture

Gotta love how buffet (referenced in the article) holds the Sword of Damocles over the uniformed. Because default won't happen if we kick the can down the road?

Tue, 10/08/2013 - 09:27 | 4033474 NFX
NFX's picture

I like the phrase about gold storage: most appropriate storage options for their own particular circumstances.
I wonder where that would be?

Tue, 10/08/2013 - 09:53 | 4033553 No Euros please...
No Euros please we're British's picture

From what I read here, most ZH'ers deposit their gold and silver with the Davy Jones Locker Co.

Tue, 10/08/2013 - 09:58 | 4033573 Boris Alatovkrap
Boris Alatovkrap's picture

Boris keep in mouth, hope burglar and banker (is difference?) not carry pliers.

Tue, 10/08/2013 - 12:04 | 4034070 donsluck
donsluck's picture

Me too! The kids' inheritance is in my teeth!

Tue, 10/08/2013 - 09:17 | 4033442 GeezerGeek
GeezerGeek's picture

The possibility of default is far too valuable as a threat for DC to ever actually let it happen. Like all other crises, the best aspect of it is to scare the great uninformed masses into conformance to the groupthink concocted by the self-anointed elites. This is no different than the eternal promises to combat fraud, waste and abuse that politicians utter. This is no different than the urgings to "do it for the children" that flow forth from those same idiots. 

Defaulting on interest payments will only happen if TPTB want it to happen. Cash flow can cover any such payments due, especially since they're closing all those national parks.

Tue, 10/08/2013 - 09:30 | 4033486 unwashedmass
unwashedmass's picture

 

default or not, the damage is done. 

the world sees how cavalierly and arrogantly these idiots take the responsibility of the world's reserve currency. 

its over now for the dollar. 

Tue, 10/08/2013 - 10:43 | 4033751 jughead
jughead's picture

it was over for the dollar about 40 years ago, nice to see you finally noticed.

Tue, 10/08/2013 - 09:56 | 4033569 Boris Alatovkrap
Boris Alatovkrap's picture

And the long slow decline of republic is begin... circa 1913 (see, how long is take!)

Tue, 10/08/2013 - 09:03 | 4033407 MFLTucson
MFLTucson's picture

Laughable to even talk about this, we all know the game in DC and default will never happen.

Tue, 10/08/2013 - 10:42 | 4033742 jughead
jughead's picture

Yup, they'll pay the debt, it'll be the entitlements that they "default" on.

Tue, 10/08/2013 - 09:28 | 4033471 LawsofPhysics
LawsofPhysics's picture

"Laughable to even talk about this, we all know the game in DC as we all know default already happened" - fixed.

 

Just because a plane loses all it's engines are 40,000 feet, it does not mean it will hit the ground immediately.  Depending on the conditions it may be able to glide for quite some time.

Tue, 10/08/2013 - 09:32 | 4033489 Tinky
Tinky's picture

To extend the metaphor, Ben Bernanke ain't Chesley Sullenberger. Nor is Yellen, etc.

Tue, 10/08/2013 - 09:54 | 4033558 Boris Alatovkrap
Boris Alatovkrap's picture

When is falling 10,000 meter, is not first 9,999 meter that is fatal.

Tue, 10/08/2013 - 12:51 | 4034250 savagegoose
savagegoose's picture

lol and if you aint mde plns during that  1st 9999 meters,   starting  to plan at the last meter isnt going to help.

Tue, 10/08/2013 - 14:32 | 4034787 Boris Alatovkrap
Boris Alatovkrap's picture

If fail make plan at 9999 meter, falling man is make plain at final meter.

Tue, 10/08/2013 - 10:56 | 4033793 cpzimmon
cpzimmon's picture

Seriously, the only  only pertinent information with regard to the US economy that I get from ZH is the foreign (and sometimes off the wall) perspective of Boris Alatovkrap. Cheers Boris!

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