Saturday, August 26, 2017

Repercussions of a debt ceiling fight will be lower dollar, lower bond yields, and higher gold prices

There is only one thing that sustains the U.S. economy and that is the government and central bank's ability to continuously create new debt.  And since most assets are tied to the dollar, and to what the Fed does regarding monetary policies, any interruptions along the way tend to have dire consequences for stocks, bonds, and the currency itself.

Lately the biggest detriment to the dollar has been from Congress, who has been unable to both pass a news tax reform measure, and reconstruct or outright eliminate Obamacare.  However there is a much more important legislative fight coming onto the horizon in the next few weeks that could precipitate repercussions to the dollar, bond yields, and the price of gold.

And that is the raising of the debt ceiling.

"If you consider that we're going to see some debt-ceiling drama, that actually is going to depress yields even more," Sanchez said Thursday on CNBC's "Power Lunch." "And the weakness in the dollar is expected to continue into the next year. Both of those will support gold." 
Examining the metal from a chart-based perspective, Phil Streible of RJO Futures said Thursday on "Power Lunch" that with gold dancing above the key $1,300 level that has long served as resistance, "I think that $1,350 is in the cards." - CNBC
Because the nation's debt levels are so high, and derivative markets are so leveraged, any financial, political, or even geo-political event could see the gold price rise even as much as $100 in a day, as what took place last year with the Brexit vote and the election of Donald Trump.

Yet perhaps what can also be considered a turning point for gold is the fact that manipulation and the dumping of naked short contracts by the bullion banks to depress prices is no longer working as it once did between 2011 and the end of last year.  And all one has to do is look at the action in the gold markets yesterday to see that a 9% dumping of contracts was quickly erased within an hour's time, and the price closed out the session in the green.

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