So far 2021, has been a disappointing year for gold, says Prithviraj Kothari – the bullion king of India. It has failed to attract new buyers despite inflation fears and debt worries. Year-to-date, gold is down more than 7% after selling off at the $1,800 an ounce level multiple times.
Gold rose to another level over COVID concerns. However, the main reason for the gold downfall has been a strong US market. The US stock market has not witnessed a major pullback since the 2020 low. If equities are entering a more sustained wobbling period, we see gold, Treasury bonds and Bitcoin as top contenders for outperformance.
It can also be emphasized that the investments in gold and Bitcoin are viewed as insurance, and not as short-term trades. These are considered to be part of a long-term portfolio that seeks to balance the long-term risks and opportunities in the current global context.
Worries about the debt ceiling are beginning to rattle investors as the deadline nears for Congress to raise the US borrowing limit to avoid a historic default on US debt. After Powell’s stern remarks on the debt ceiling, the DOW plunged to 500 before recovering somewhat. The USD index was 93.7 on low, and gold attempted $1771 an ounce. The FED president, Bullard, says that they are now worried that the inflation crisis is on the upside. After crude hit a 7-year high on Monday, mounting inflations has become a serious concern as natural gas is also at a multi-year high at the moment. It could just be a possibility that the FED’s inflation measure, i.e. PRICE PPE INDEX, may hit above 6-6.6% by year-end, and FED may not be able to do tapering at all. Gold had a good close on October 5, well above $1762, as a result of a critical hurdle after Bullard comment in inflation and subsequent fall in DOW and USD.
The Federal Reserve’s potential plan is to reduce its monthly bond purchase by the end of the year continues to weigh on the gold market as prices remain tethered to support around $1,750 an ounce. However, one investment firm continues to see gold prices pushing thousands of dollars higher in the long term.
Gold comex was attempting an elevated bottom above $1740-$1750 bands while on a host of concerns. It is very well in a position to attempt $1785-$1795 before the payroll comes on October 8. The US Senate is under pressure after a stern warning from President Biden as he called for an immediate hike in the debt ceiling before a catastrophe situation emerges for the financial markets.
The recent market movements suggest that investors like Prithviraj Kothari, after months of ignoring a debt limit standoff, seem to be taking the once-unthinkable possibility of a U.S. default seriously. Today, Congress seems to be locked in a stalemate, with the clock ticking down and a potential debt default looming in October. With this once-unthinkable scenario now becoming more likely, let’s see what a U.S. default would look like for physical gold investors and how they could prepare for it. There could be two possible scenarios –
Scenario 1: If the US debt becomes ‘unsustainable’ and tops 200% of GDP, then the gold price will go up.
Scenario 2: If the ceiling is raised and the debt-to-GDP ratio goes down, the gold price will hover above the $1,800 level.
If a US default were to happen, it would have major repercussions for the country and the global economy, potentially creating a historic financial crisis. In times of uncertainty, investors usually turn to safe-haven assets like gold to protect their portfolios, says the bullion king of India. So, no matter which way the debt ceiling situation goes, it seems gold should retain its value, offering a haven of safety, as it has done over the centuries.