Chantilly VA (PRWEB) October 04, 2013
The last few years have seen a bull run in the market for US Government debt as investors worldwide have sought the safety of the historically stable dollar. Japanese and European investors fled their unstable monetary climates, and domestic US investors exited from equities after the collapse in the middle of the previous decade. The same time these investors bought into Treasury Bonds, the Federal Reserve bought in, for a different reason, driving rates down and bond prices up.
In a free market bond yields are a function of, amongst other things, confidence of repayment by the issuer. With a sustained government shutdown likely and an even more disastrous debt ceiling approaching, one has to wonder how long investors will remain confident in these bonds, and ultimately in the dollar.
The President has repeatedly said, that the US always pays it bills on time. In fact the US can't pay its bills on time, this is the whole reason for the debt ceiling debate to begin with! The US borrows money to pay its bills, postponing payments into the future. As this trend continues without slowing down holders of the debt will start to get anxious and flee as confidence in the Government and their ability to repay begins to diminish.
Enter gold. Gold is the prime asset to swoop in a become the safe haven investment once confidence in Treasuries begins to fade. The prolonged government shutdown and drug out debt debate will only provide a springboard for the price of gold. A failure to raise the debt ceiling may lead to shattered confidence, but conceding by the republicans and allowing the debt to keep climbing will be even more bullish for gold in the long run.