Gold Surged 17% In 15 Trading Days After Last Debt Ceiling Extension In 2011

GoldCore's picture

Today’s AM fix was USD 1,278.25, EUR 944.75 and GBP 797.71 per ounce.
Yesterday’s AM fix was USD 1,255.50, EUR 929.59 and GBP 787.79 per ounce.

Gold climbed $8.60 or 0.68% yesterday, closing at $1,281.30/oz. Silver rose $0.07 or 0.33% closing at $21.33. Platinum climbed $2.99 or 0.2% to $1,380.49/oz, while palladium fell $7.78 or 1.1% to $704.72/oz.

Gold in USD and Debt Ceiling 2011  - (Bloomberg)

Gold came under pressure in early Asian trading prior to turning around and rising to $1,290/oz. Gold was capped at these levels and then gave up those gains to trade flat in European trading despite Fitch placing the United States triple A rating on credit watch. 

U.S. lawmakers are scrambling to come up with an agreement to increase the federal debt ceiling before tomorrow’s deadline. Gold has not priced in a U.S. default - which could result from failure to raise the borrowing limit - on expectations that Congress will reach a deal at the last minute.

A default remains unlikely but should it happen it would roil global markets, hamper economic recovery and lead to another wave of safe haven gold buying.

More likely, is that politicians once again raise the debt limit to over $17 trillion - thereby eliminating the short term crisis but increasing the likelihood of a far bigger crisis in the coming months and years.

Physical buying remains robust particularly in China and India where premiums are rising again as gold is snapped up by canny Asian value buyers.

Gold premiums in India, the world's biggest buyer of gold along with China, hit a record $100 an ounce due to a shortage of bullion to meet festival demand. In China, premiums in the Shanghai Gold Exchange climbed to over $20 an ounce from about $7 two weeks ago.

Gold has fallen about 4% since the government shutdown began on October 1, leading many to believe that if there is no debt deal, the price could shoot up, particularly should we get a significant bout of “risk off” in markets.

Gold In USD, 3 Days - (Bloomberg)

It is interesting to note that in 2011, gold rose in the months prior to the debt ceiling agreement. Then in the immediate aftermath of the debt ceiling extension agreement on August 2nd 2011, gold surged another 17% in 15 trading days after the agreement was reached. From August 1st to August 22nd, gold rose from $1,619/oz to over $1,900/oz.

The United States lost its important AAA credit rating from Standard & Poor's late on Friday August 5th, 2011, in a dramatic vote of no confidence for the world's largest economy and the U.S. dollar.

This was a catalyst for the surge to the record nominal high of $1,920/oz two weeks later.

Gold In USD, 10 Days - (Bloomberg)

How Fitch has not downgraded the U.S. already is a mystery to analysts looking at the U.S. fiscal position and the lack of political will to tackle it. It seems likely that significant political pressure is being put on credit ratings agencies regarding their credit rating of the U.S.

The very poor fiscal position of the U.S. will gradually erode confidence in the dollar which will see it continue to lose value against gold. The continuing depreciation of the dollar and the further downgrading of the U.S. credit rating from AAA will contribute to higher prices again.

The question is when, rather than if.

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dlmaniac's picture

It was not debt ceiling rallying gold for 15%. It's S&P downgrade.

uncle_vito's picture

Did 2011 have some moron banging limit down on Gold futures at the Comex open every day?   Hmmmm?   Not too amenable to a gold rally.

objectivist's picture

You neglect to mention that S&P, after downgrading US debt, was hit with a huge lawsuit by the SEC.    Is it any wonder that Fitch noticed that and didn't step out of line and downgrade as well? 

Squid-puppets a-go-go's picture

but the lawsuit was triggered months afterwards - no impact on the rally under discussion

CashCowEquity's picture

1280+17% is a squiggle under $1500 gold. Im not seeing it. Im a gold bull, but its still in a bear market til (In my opinion) Spring 2014.

Haager's picture

Bring in the foodstamps for gold carry trade!

boeing747's picture

Thank a lot, downgrading USD and UST becomes downgrading Gold&Silver. I bought Rhodium bar last week instead.

Seal's picture

the really sad and scary thing is the Federal Reserve is certain it's doing the right thing naked shorting gold and buying the RUT futures

No Euros please we're British's picture

I am led to believe a lot of terrorists fled Europe in the 1940's with gold sewn into their clothing.

RaceToTheBottom's picture

Gold is obviously a terrorist commodity

Handful of Dust's picture

Of course, gold an dother PMs (as well as food, etc) will soar. The Fed will have to print most of that money for the deficit spending. Add to that the back pay and catch up for several million gubmint employees.....

Wiat until the checks arrive and the spending begins....I suspect we'll see some [more] inflation out of this.

buyingsterling's picture

That makes perfectly logical sense. So expect gold to fall. And they'll bitch-slap silver buyers just for kicks at the same time.

W74's picture

Here in the Maryland area (ok, I'm Baltimore, not D.C.) contractors slowed down fixing up homes in the DC suburbs years ago.  Government workers are on edge as it is (never had an incentive to save before) and have finally realized that they checks might not always come in.

I'm waiting to see homes start lopping off 30-40k per month should the government default.  It would be a start in the right direction.

Alexandre Stavisky's picture

The maiden with flaxen hair

Accurs'd be he that first invented fiat!

They knew not, ah, they knew not, venal men,

How future be hit by pelting dilution

So stand we staggering like whipping aspen-leaf

Fearing the force of capriccio price disorder!

In what a lamentable case are they,

As nature had not given heritable honesty!

For financiers are clouts that all men despise,

Our money the pin that thousand Fagins seek to cleave:

Therefore in policy I think it good

To hide me in metal cousin close; a goodly stratagem,

And far from any man that is fiat’s fool:

So shall not I be known; or if I be,

They cannot take away my wealth from me.

Here will I hide it in this simple hole.

Handful of Dust's picture

Of course, gold an dother PMs (as well as food, etc) will soar. The Fed will have to print most of that money for the deficit spending. Add to that the back pay and catch up for several million gubmint employees.....

Wiat until the checks arrive and the spending begins....I suspect we'll see some [more] inflation out of this.

Sufiy's picture

More Evidence Pointing to Manipulation in Gold Market? 

 We are putting all the pieces together in this Crime Of The Century - Gold Market Manipulation. So far it has allowed China to accumulate all the available gold on the cheap and a lot of industry experts are talking about the upcoming surprise now - when China will announce the much larger holdings of Gold than it is believed to be holding now.

Fuh Querada's picture

.....the United States has more than 8000 tonnes of gold ..."
James G. Ricktards

buyingsterling's picture


Come on, Jim. You know the US government believes in tungsten more than they believe in Gold. But their favorite metal is DU! They love the stuff, and share it liberally with dark skinned people all over the globe (at least those 'minorities' in 'strategically important' areas).

Chupacabra-322's picture

And, the new Reserve Currency to back it up. Checkmate.

agent default's picture

For one thing if logic and facts point to a rising gold price then gold will get hammered in order to damage confidence.  It will get hammered so blatantly that even MSNBC will openly talk about it.  But don't expect any action on the subject either, the US will go as far as to play the "National Security"(TM) card on this matter.

You can take that pretty much for granted.  Gold will be smashed further, until something breaks big time.

Squid-puppets a-go-go's picture

well, the MSM here in australia are now talking openly - on brekky TV, too (dumbest audience) that the days of the US as reserve currency are coming to an end

ebear's picture

You'll know the bottom is in when gold dealers stop talking their book and start looking for another line of work.

Watson's picture

Gold Surged 17% In 15 Trading Days After Last Debt Ceiling Extension...

A headline like that smacks of desperate goldbug...

I just wonder that the refusal of the gold price to return to the USD 1900 levels (a lot more than +17% from current values, btw) is a sort of barely conscious realization that there is another way of curing the US debt addiction, apart from Congress switching off treasury auctions.

Maybe the buyers decide they don't want to turn up.

Not because of rate concerns, but perhaps because China allows those buyers to hold and transfer its currency and bonds without restriction or limit.
And a new reserve currency is born.

Gold has the advantage of severe supply constraints.
But the currency of a country running continual large surpluses is actually having the free float continually removed.
Maybe freely traded CNY's are a better deal than gold...

Took Red Pill's picture

"How Fitch has not downgraded the U.S. already is a mystery to analysts"

PLEASE! These credit rating agencies are a joke!

No Euros please we&#039;re British's picture

And put it this way. The last rating agency that downgraded is now being sued by the US government, and the one before that lost it's licence to grade government debt.

Fitch have already had their offices raided in Italy and Spain, which obviously means they are terrorists, so watch out Fitch! The US of A double dares you.

W74's picture

Office Raids by the zydokomuna SS stormtroopers are the only ratings anyone should need. 

Both Siskel and Ebert's ghosts give this comedy-tragedy two thumbs up.