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Gold Spikes 3% After Debt Ceiling Rises & U.S. Downgrade

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Today’s AM fix was USD 1,308.50, EUR 959.87 and GBP 813.09 per ounce.
Yesterday’s AM fix was USD 1,278.25, EUR 944.75 and GBP 797.71 per ounce.

Gold fell $1.80 or 0.14% yesterday, closing at $1,279.50/oz. Silver slid $0.06 or 0.28% closing at $21.27. Platinum climbed $14.80 or 0% to $1,395.20/oz, while palladium rose $7.25 or 1% to $712.55/oz.

Gold prices jumped $36 in 15 minutes and it surged as high as $1,321 per ounce or as much as 3.6% at one stage. Silver jumped by an even greater margin, by 5.1%, and rose as high as $22.18/oz.

Gold rose for the first time in four days after U.S. lawmakers reached an agreement to increase the debt ceiling and increasingly important Chinese credit ratings agency, Dagong Global Credit Rating Co. cut its credit rating for the U.S.

This led to short covering and some safe haven demand for gold as the dollar fell against all major currencies.

Gold in USD and Debt Ceiling - Quarterly, 1933-2013 (Bloomberg)
Gold in USD and Debt Ceiling - Quarterly, 1933-2013 - (Bloomberg)

The smart money is scooping gold bullion up at these depressed levels. Gold is down 23% this year despite robust demand from central banks and especially from India and China.

Global sales of bullion bars and coins gained 78% in the second quarter, according to the World Gold Council, showing that demand actually accelerated.

The U.S. government has avoided default but remains essentially insolvent and its appalling fiscal state has deteriorated once again due to the debt ceiling being raised above $16.7 trillion. Although the U.S. national debt has already surged well above that and as of writing, the U.S. National Debt is actually nearly $16.97 trillion and rising at roughly $1 trillion every year.

It is worrying that the recent debate has again been superficial and revolves around the theatre and political chicanery of the Republicans versus the Democrats and the usual partisan support for opposing ‘teams’ rather than the substantive issue of America’s likely insolvency and the fact that the actual national debt is actually between $100 trillion and $200 trillion and there is little sign of political or economic will to tackle this fundamentally important issue.

The U.S. is engaged in fiscal and monetary policies that are akin to a Banana Republic.

In addition to electronically creating out of nothing $85 billion every month to buy its own debt in the form of bonds, the U.S. is also borrowing more money than it is authorized to borrow, from itself again.

The extra $264 billion or so in borrowing — the difference between the actual real time $16.964 trillion national debt and the $16.7 trillion debt limit — was lent to themselves - by one section of government to another - in recent weeks.  Treasury Secretary, Jack Lew, ex COO of Citigroup Bank, has been using “extraordinary measures” since the U.S. ran out of money a few months ago and has been using government retirement programmes to make up the difference.

This is a form of shell game or confidence trick used to perpetrate what is a dangerous accounting practice that tends to end in tears.

 


Gold and Silver in USD and Debt Ceiling - Quarterly, 2000-2013 - (Bloomberg)

These unusual, some would say fraudulent, accounting practices and the fact that the U.S. is borderline insolvent, contrary to copious amounts of denial globally, are extremely dollar bearish and gold and silver bullish.

The risks posed to the dollar, but also to the pound, euro, yen and other electronic and fiat currencies is why we remain confident that both precious metals will reach real (inflation adjusted) record highs in the coming months.

Silver will likely continue to outperform after its most recent period of under performance.

JP Morgan Chase has issued letters to its business account holders notifying them that as of November 17 the bank will limit all cash transactions, including deposits, withdrawals and ATM usage, to $50,000 per month, and will prohibit all outgoing international bank wires.

Chase Bank has moved to limit cash withdrawals while banning business customers from sending international wire transfers. This has caused speculation that the bank is preparing for a looming financial crisis in the United States by imposing capital controls.

Some have suggested the drastic measures were designed to push business clients into more costly premium business accounts. Bank officials confirmed yesterday that the new capital limits apply to all business account holders but could not say why the measures came about and whether they were bank driven, due to profit motives or government regulations.


Gold in USD and Debt Ceiling, 2011 - (Bloomberg)

The bank will stop processing any outgoing international bank wire, and that any monthly cash transactions in excess of the new $50,000 limit will be subject to penalties and fees.

JP Morgan is embattled after a series of scandals including allegations of manipulation in many markets including LIBOR, foreign exchange, oil and energy markets and of course in the gold and silver markets.

It has received some enormous ‘slap on the wrist’ fines as it attempts to clear up the mess created by the London Whale trading scandal. The bank will pay $100 million to the U.S. Commodity Futures Trading Commission (CFTC), conceding "reckless" behavior led to the trading debacle that generated about $6 billion in losses.

There remains the real risk of capital controls and it will be important to own gold bullion in the event of capital controls.

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Fri, 10/18/2013 - 15:00 | 4069780 sasebo
sasebo's picture

Pardon, se voux plais ---

"In addition to electronically creating out of nothing $85 billion every month to buy its own debt in the form of bonds, the U.S. is also borrowing more money than it is authorized to borrow, from itself again."

This is not correct  ---- the US is not creating "out of nothing" & "buying its own debt". This is being done by the Federal Reserve which is a private company owned by the big banks. So when tax payers pay taxes to pay off the debt, they are actually paying the big banks. We've often heard the proposal that the guvmont "the fed" should just extinguish all the debt 'tb" it holds & reduce the national debt. Now you know why not.

 

SABT -----

 

Fri, 10/18/2013 - 13:39 | 4069467 geewhiz
geewhiz's picture

Is it only me or has anybody noticed that btc price has not been able to be squashed like gld. No paper btc contracts to do it with.

Fri, 10/18/2013 - 13:37 | 4069455 exartizo
exartizo's picture

I really do hate a sales pitch disguised as "useful information".

Fri, 10/18/2013 - 09:32 | 4068419 NoWayJose
NoWayJose's picture

I'm always baffled by these 'experts' that cite any up move in gold as being due to the $85 billion taper. Gold is DOWN 25% since QEternity started. There is no link between the two. The powers that are suppressing gold have not changed, nor has their desire to continue to suppress gold prices. This move is not about the taper. Its an algo driven spike, helped by dollar weakness, designed to force some shorts to cover. I believe gold will go higher, but not until either the collapse or until its handlers want it to.

Fri, 10/18/2013 - 09:08 | 4068346 superflex
superflex's picture

C'mon 1330.

Let's break that resistance and watch it skyrocket.

Fri, 10/18/2013 - 08:20 | 4068207 orangegeek
orangegeek's picture

To put this move up into perspective, Gold weekly is currently near channel resistance - about 1316.

 

http://bullandbearmash.com/chart/spot-gold-weekly-falls-3-downside/

 

Need a daily close well above 1325 before considering a reversal back up.

 

Fri, 10/18/2013 - 08:12 | 4068190 Duude
Duude's picture

I agree the debt situation is way out of control and that the actual actual actual debt is actually over $100T when we consider all the unfunded mandates, I'm not going to give much weight to Dagong Global Credit Rating Co. I mean really, Dagong? While American credit agencies are partisan to US interests, Chinese credit agencies are partisan anti-US.  

Fri, 10/18/2013 - 07:28 | 4068120 Sufiy
Sufiy's picture

The road from here: Janet Yellen is Bullish for Gold:


Peter Schiff On Gold Catalyst: Janet Yellen Exposed - The Truth Behind the Myth


Peter Schiff separates truth from the mass media hype about Janet Yellen's real track record. As we have discussed before, her core beliefs are even more neo-keynesian than those of Ben Bernanke. The new play book for the FED is written by Michael Woodford and it will be even more fundamentally positive for the Gold. We can expect continuation of "pro-growth policies" with very little regard for the created bubbles along the way.
  Peter was right about the Housing Bubble in 2006, he was right about the "Tapering" in September, what will happen if he is right again with his Call on Gold? We will provide his discussion on Gold and our entry on Michael Woodford to dig it out more for interested. http://sufiy.blogspot.co.uk/2013/10/peter-schiff-on-gold-catalyst-janet.html#

Fri, 10/18/2013 - 07:26 | 4068116 CheapBastard
CheapBastard's picture

Nice pop.

Fri, 10/18/2013 - 07:07 | 4068089 e-recep
e-recep's picture

Gold is ready to be catapulted into the sky.

Fri, 10/18/2013 - 10:06 | 4068510 Marco
Marco's picture

Always.

Fri, 10/18/2013 - 06:52 | 4068075 overmedicatedun...
overmedicatedundersexed's picture

This is the beginning: capital control. is it China liquidating and thus $$$ and dollar assets hitting the world like a tsunami? The world has been shaken by our farce of a debt debate in congress, it seems some thought printing would be controlled by the GOP congress, well votes in congress have consequences..devalue of FRN's is much more possible with the unlimited IOU given the executive branch.

Fri, 10/18/2013 - 07:01 | 4068082 rationaldemocracy
rationaldemocracy's picture

When the dollar goes to zero and all those greedy baby boomer republicans lose everything they ever worked (pfeeeah right) for I will be there in the burning streets helping to create a new, more just society and NOT counting my gold schillings

Yes, the dollar will go to zero, que bono? Certainly the young people of this country who have been waiting for the old (greedy, white) order to collapse.

 

 

 

 

 

Fri, 10/18/2013 - 14:32 | 4069694 greatbeard
greatbeard's picture

>> who have been waiting for the old (greedy, white) order to collapse.

I'll grant you, the current crop of greedy control freeks are heavily represented by old white guys.  Don't let that fool you though, greed comes in all colors. Give the brown folks, or the black folks, or the yellow folks the power and the greedy will rise to the top also.

Fri, 10/18/2013 - 10:15 | 4068552 Zero Point
Zero Point's picture

Hey rationaldemocracy. When looking through a farmhouse window, pigs and people bear a striking resemblance.

Fri, 10/18/2013 - 10:10 | 4068526 Marco
Marco's picture

So, what if the dollar doesn't go to zero? What if it just keeps depreciating while slowly the austerity screws are turned tighter until the 0.1% own 99% of the wealth and the US is finally back in trade balance (with thirld world living standards for the majority).

I consider that the more likely outcome.

Fri, 10/18/2013 - 08:27 | 4068219 jwoop66
jwoop66's picture

And then we can be pure and virtuous like those Asian, African and South American countries!

Fri, 10/18/2013 - 09:19 | 4068384 superflex
superflex's picture

Africa and Africans are the model of virtue.  Just ask Zimbabwe.

Someone should lay off the white man hate koolaid.  

Fri, 10/18/2013 - 07:08 | 4068091 overmedicatedun...
overmedicatedundersexed's picture

LOL, I guess Obuma is really WHITE, then my big talk troll

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