It really wasn’t that long ago that budget disputes, haggling over the debt ceiling and extended U.S. government shutdown stole center stage for the economy, financial markets and U.S. citizens. While most traders have pressed the snooze button for now in relation to the U.S. deficit issue, this is an issue that isn’t going away anytime soon.
Over the years, as the national debt has increased, the U.S. Treasury has bumped up against this debt limit and Congress has raised the debt ceilings dozens of times. However, in late summer 2011, the battle to raise the debt ceiling sparked a political firestorm that rocked financial markets and took the country to the brink of default and ultimately resulted in a credit downgrade for U.S. sovereign debt.
Nearby gold rallied to its all-time high during that time period. Looking at the numbers, from the May 2011 high to the October 2011 low, the S&P 500 fell just over 21%. Meanwhile, from May 2011 to the September 2011 high, nearby gold futures gained over 29%.
Is the U.S. headed for a repeat performance in the months ahead? The increasing partisan divide and unexpected departure of House leader Cantor certainly up’s the ante on uncertainty into 2015. Gold hedge anyone?
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