A friend called this morning and asked if a debt deal would be good for gold. The short answer is, "yes." Whatever deal we make and however we spin it, we are still just adding more debt to debt we already cannot pay. We can talk about cutting $2 - $4 trillion of spending over the next 10 years, but against a backdrop of $10 or $12 trillion of projected deficits, where's the benefit?
Now, let's add in unfunded liabilities for Social Security and other government pensions and the $2 - $4 trillion of spending cuts is irrelevant. Bill Gross of Bond Giant Pimco, says the real U.S. debt is $75 trillion. That grows by the minute as baby boomers try to head for retirement. Consider this. If the interest accrued against this $75 trillion in debt were just 2% annualized, that alone would add $1.5 trillion to the debt per year.
In the end the solution will be as always, print more money and regardless of the rhetoric you hear every day, that is the likely solution to our economic crisis. It is the way it has been through history and nothing will change. Is that good for gold? Of course it is. Expanding the money supply is inflationary. That's why central banks of the world are buying more gold. They print the money to pump into the economy and then take a portion to buy more gold. They know what they print today will buy less tomorrow.
When a debt deal does finally get done don't be surprised though, if gold prices, as well as silver, dip. The news in the short term will be positive and indicate a crisis has been averted but the reality? Nothing changes! The long term prospect for gold is higher gold prices ahead.
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