Gold prices surge as US debt ceiling deal echoes reminders of 2011 – What’s next? [Video]
|A bipartisan deal to raise the United States' $31.4 trillion debt limit until January 1, 2025, goes to vote in the House on Wednesday, as lawmakers race to prevent a catastrophic default.
In normal times this kind of news might be celebrated, but in 2023 its cause for concern, as it implies that the U.S will be knee-deep in debt, to the tune of $35 trillion by January 2025.
Assuming a deal to raise the debt limit gets passed before June 5, the U.S Treasury Department will need to issue more bonds to replenish the cash it burned through during the period of extraordinary measures when it could not borrow more money. This period began in mid-January after the debt ceiling was initially breached.
According to economists, that scenario alone would suck liquidity out of the global equities markets at a dangerous time when the economy is fragile and recession risks are high.
And that’s not all.
This deal comes at a time when credit conditions are tightening, inflation remains elevated and the Federal Reserve is on the verge of raising interest rates higher in the months ahead.
If you are feeling déjà vu all over again, you aren’t alone.
This has all happened before. Only this time, it could be worse.
In 2011, global equities markets went into meltdown when President Barack Obama and the Republicans announced a “Debit Ceiling Deal” on July 31.
The carnage didn’t stop there. Two weeks after Obama signed the Debt Ceiling Bill, the global stock market reported its worst losses since the financial crisis in 2008 as traders absorbed how the agreement – which forced major spending cuts – would hit an economy that was still stuck in the mud.
Then on August 5, the S&P Global Credit Rating Agency downgraded the government from AAA to AA+ credit rating, which further pushed down global equity markets.
All these bullish factors combined catapulted Gold prices to an all-time high in 2011, while Silver prices rocketed to $50 an ounce.
With how things are playing out right now, even if a default is avoided, America’s credit rating could still get downgraded – and that, in itself, presents an extremely lucrative backdrop for precious metals heading into June.
Whichever way you look at it, one thing is clear. The current macroeconomic backdrop is fuelling a “perfect storm” for precious metals, which suggests that new record highs could be on the horizon. That’s welcoming news for the bulls, but painful for anyone sitting on the side lines, who must now decide how much FOMO they can handle.
Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:
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