Possibility of national debt crisis, Fed and weak dollar lead to gains for gold – .

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Possibility of national debt crisis, Fed and weak dollar lead to gains for gold – .


A multitude of factors drove gold up sharply, gaining just over 2% on the day. Today, Janet Yellen, the Secretary of the United States Treasury, testified before the House Financial Services Committee. During her testimony, she made a dire prediction if the United States could not honor its debts. This will happen if American politicians are unable to pass legislation to raise the debt ceiling. According to the Secretary of the Treasury, the government would not be able to meet its financial obligations if, by October 18, no laws were passed to raise the debt ceiling, which is currently capped at 28.4 trillion. dollars.

According to Reuters, “Yellen, when asked by a member of the House Financial Services Committee whether the damage caused by the failure to meet the federal government’s debt obligations would be irreparable, replied: yes.

Janet Yellen warned of the dire consequences if Congress remained deadlocked on passing legislation that would repeatedly raise the debt limit. However, in this case, the government only has 19 days before the government runs out of cash. Secretary Yellen warned that after October 18, “we will not be able to pay all the government bills.”

She also warned that “As we saw in 2011, when the debt ceiling was raised at the absolute last minute, [we saw] investor and consumer confidence has been shaken. What would happen this time around is an increase in interest rates and a sell off in stocks. “

It was just one of the factors on the radar of gold investors that drove gold up today. The Federal Reserve Chairman also testified with Yellen today. During his testimony, Powell backed down on the more hawkish tone that was evident at his press conference earlier this month. At Powell’s press conference, he said the Federal Reserve would “soon” start cutting its monthly asset purchases by $ 120 billion. He suggested that tapering could start as early as November of this year. His statements were based on the belief that inflation levels were transient and that they were meeting their goal of solid employment in the United States. However, today President Powell said that “we are a long way from full employment, which prompts us.”

Finally, it was reported today that new claims for unemployment benefits increased last week. This may have been a factor in President Powell’s testimony today, in which he moved away from the more hawkish tone presented at his press conference after this month’s FOMC meeting.

In addition to these fundamental events today, another bullish factor driving gold higher has been dollar weakness, short hedging and buying down sentiment that has been occurring in the futures markets.

These factors resulted in strong gains on gold, with the Comex futures contract of December 2021 currently at $ 1,757.50, which represents a net gain of $ 34.60, or 2.01%. This strongly underlines the sensitivity of the price of gold as it reacts to a headline driven market in this case, creating a bullish rather than bearish market sentiment.

The persistence of this new bullish sentiment depends on several fundamental events. These include future statements by President Powell whether or not Congress can pass the legislation needed to increase the debt limit in the United States. The most recent inflation data will be released on Friday when the Census Bureau releases its most recent data on the PCE (personal consumption expenditure) rate of inflation. The PCE is the Federal Reserve’s preferred inflationary measure. It differs from the CPI in that it excludes the costs of food and energy.

The economic recovery in the United States is fluid, and the outcome of the issues discussed in this article remains to be written.

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Wishing you, as always, good exchanges and good health,

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to trade in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.

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