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Gold Price Hinges on Debt Crisis, Hits New Record

By Rob Bates, News Director
Posted on July 29, 2011
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As the gold price hit yet another record on July 29, the metal’s short-term direction may depend on the resolution of the U.S. debt crisis, analysts tell JCK.

If the United States can’t meet its debt obligations, “the price of gold could hit $2,000 overnight,” says Jeff Clark, senior precious metals analyst for Stowe, Vt.–based Casey Research. “But I don’t think there will be a default. That is unthinkable.”

Sierra Highcloud, a commodities analyst with VM Group in London, who also believes there will be a resolution, agrees.

I think that a default will be gold-positive,” he says. “But in the event of a calamatious event like that, as with the crisis in 2008, there could be indiscriminate selling of all kinds of assets. So that is a difficult one to predict.” 

However, if an end to the impasse is reached before the deadline, the analysts expect a small correction in the price.

The last four to six weeks have been very good for gold because everyone is trading on the whole fear factor of a default,” Highcloud says. “I think a resolution will be negative for gold but that will just be temporary.” 

Indeed, both Clark and Highcloud say there are other reasons for the gold price to rise beyond the U.S. debt crisis.

“The Hong Kong Exchange now has gold and silver futures trading,” Clark notes. “The Swiss Parliament is expected later this year to discuss the creation of a gold franc. A recent survey of 80 central bank reserve managers predicted that the most significant change in their official reserve holdings in the next 10 years will be their intentional build up in gold reserves. And there’s already a gold rush underway in most of Asia.”

These “entities are not buying gold because Barack Obama and John Boehner can’t get along,” he says. “They’re buying gold because inflation is scourging every part of life, because their currencies are losing value, because there’s an increasing lack of confidence in governments to solve the problems.”

The predictions come as the spot price of gold hit a new all-time record on July 29, reaching $1,633 an ounce, in part because of uncertainty over the debt crisis.

At press time, it had fallen to at $1,624 an ounce.

The gold price first crossed the $1,600 mark on July 18.

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