Gold Price Hinges on Debt Crisis, Hits New Record

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