As the debt ceiling debate continues and the possibility of a default nears, more investors are turning to gold.
Interest in Gold Rising as Possible Debt Default Nears
According to Bloomberg’s latest Markets Live Pulse survey, gold is the top pick for those seeking protection from a default.
Bloomberg reports that more than half of finance professionals said gold is what they would buy if the U.S. government fails to honor its obligations.
A recent Gallup poll found that the commodity has become a popular long-term investment option as investors become increasingly worried about higher interest rates and economic uncertainty.
Gallup said gold tends to be “beneficiary” when confidence levels in other investments are down. “This is typically during times of economic recession or uncertainty, as happened around the time of the Great Recession and is happening again today.”
The Debt Default and Gold Prices
The threat of a possible default is not just creating interest in the metal, it’s also causing gold prices to rise.
On Sunday, May 14, the yellow metal was reportedly up 11% year to date and 25% from its November low.
“I wouldn’t be surprised if we had a $100 move in gold prices,” Oanda Senior Market Analyst Edward Moya told Insider when speaking of a U.S. debt default. “It’s a little too tough to call, but obviously that is a historic moment that would unravel large parts of Wall Street.”
RBC Capital Markets said the lack of a resolution could set gold up for a near-term rise.
“Even assuming a deal is eventually reached, we wouldn’t disregard potential growing financial angst as the deadline approaches,” analyst Christopher Louney wrote in a client note. “In such a scenario, gold looks like one of the few likely candidates that would bear the burden of resulting market flows.” Adding, “…in the near term, we believe gold looks like the best hedge in the more immediate offing.”
Chief global strategist for LPL Financial, Quincy Krosby, also believes that gold could climb in a default, saying that the dollar could weaken and elevate it, given that the commodity is priced in dollars.
She told Insider, “It would not be surprising to see gold as a safe haven refuge for those who are concerned that a default could, in fact, ensue.”
But it’s not just a U.S. default that could send gold prices soaring.
Moya noted that an uptick in central bank gold buying, demand from China and India, and global rate easing, could push the metal to new record highs.
“So, it seems that there’s a good reason to anticipate gold could still outperform,” he told Insider. “Will $2,100 happen this year? I think there’s still a good chance that that could happen, given the way the US economy, or the direction the U.S. economy is headed. So gold is probably going to do just fine, given all the risks that are on the table.”
Investing in Gold With Red Rock Secured
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This type of IRA could help protect your hard-earned wealth from inflation and economic volatility.
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Our team of gold and silver specialists is ready to help explain and walk you through either process. Just fill out the form on the top right of this page to get started.