Gold Hits Record High Amid Debt Talks

July 26th, 2011

With a week to go before the debt ceiling deadline is hit, investors and traders are getting their emergency disaster kits ready for the potential of a U.S. credit downgrade, and they’re filling those kits with gold and silver, rather than U.S. Treasury bonds.

After talks of a deal were delayed once more, gold rose to an all-time record of $1,612/oz yesterday, amidst fears of a credit downgrade in the United States. While some are quick to blame the price spike on the political tug-of-war, investors and economic analysts say the gridlock will be a “minimal” player in the long-run, citing the rising national debt as the real reason behind creditors’ jitters. Also, the fear of not just the United States’ defaulting, but Greece as well, despite the assurance of new bailouts from the EU and the IMF. Silver also rose yesterday to $40.31/oz, the highest mark in nearly three months.

However, some gold experts are saying that the metal is being overbought, and could face a price reduction by almost $100. A miners’ strike in South Africa, where 10% of the world’s gold is harvested, is causing a shortage in supply, and may lead investors to sell their shares in gold en masse. Silver also is facing a similar drop-off, but appears to be holding steady in comparison to gold.

These price hikes (at least for now) represent the lack of confidence people have in the U.S. dollar, and for good reason. The debt talks will result in a debt ceiling increase, for better or worse, but its a temporary solution to an out-of-control problem. Only when America gets its debt under control can there be any stability in the currency, or the nation. Otherwise, the U.S. won’t just be a downgraded nation, it will be a junk nation.

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