Plunging Dollar Sent Gold Higher As U.S. Debt Limit Increases
A Plunging Dollar Sent Gold Higher This Week
The recent metals rally continued this week as a plunging dollar sent gold higher. Gold opened after the long weekend just over $1,330 and by Friday had hit $1,350. There were many factors impacting the markets this week including the Democrats’ and Trump’s agreement on the debt ceiling, monetary announcements from central banks, continued fear over North Korean missile tests, weaker-than-expected jobs data, and the devastation wrought by the record breaking hurricanes.
The dollar hit a 20-month low this week as gold hit a one-year high. The fear factor around North Korea is certainly a significant element of the driving force behind gold. However, it is likely not to be the factor that supports gold in the longer term, according to analysts at Goldman Sachs. Events in Washington such as the raising of the debt ceiling limit and future congressional battles over proposed tax reform are supporting gold.
What this means for investors: A falling dollar index usually always pushes gold higher. The dollar strength of the last year may finally be correcting, and if it does, gold will continue to rally.
Silver Rallies With Gold
Silver rallied with gold as the weak dollar boosted those prices as well. It crossed the significant $18 mark this week and reached $18.50 by Friday.
Silver is actually outpacing gold in gains this year. For August, it gained 5% while gold was up 4.3%. The white metal is generally slightly more volatile in movements, and it has been showing a trend in the last year or so of outpacing gold in movement.
What this means for investors: Silver could show some pull back going forward as it finds price stability, but overall it has a bullish outlook. Uncertainty and a weak dollar are going to likely keep spurring buying movement. When diversifying your investment portfolio, leaving some metals allocation for silver could be a lucrative move right now.
Trump Floats Idea of Eliminating Debt Ceiling
Dominating the news out of Washington this week was the debt deal that Trump reached with Senate and House Democrats that initially angered Republicans. The national debt was approaching its cap (essentially, the government was out of money), so in order to continue federal spending, the debt ceiling had to be temporarily lifted to avoid government shut down and to pass the emergency Harvey Aid bill for Houston. In three months, however, the issue will have to be revisited.
Rather than continue adding debt ceiling extensions, the President spoke about possibility eliminating the debt ceiling altogether. He has said in the past that he “loves debt” and is “the king of debt”, so it is not surprising that he would float an idea that would allow even more unbridled deficit spending to the nearly $20 trillion federal deficit.
What this means for investors: How long can such a system continue? It will be impossible to ever pay back this amount of debt. The debt ceiling news was the trigger for the dollar’s plunge this week, and also caused a major pull back in stocks. It indicates further dollar devaluation down the road that will have investors moving back into safe haven assets like gold. For more on debt crisis, watch the video on this page.
Caution from Experts over Stock Market Resiliency
The stock market had a tough week overall, and experts are advising caution. Goldman Sachs chair Lloyd Blankfein said this week that, “…things have been going up for too long” and that what he is seeing in the markets is unnerving him. Furthermore, the majority of Americans are not of the same opinion, and seem to think that the markets will not be lower in the next 12 months.
While this optimistic outlook seems positive for the market outlook, bear in mind that the last time there was so much conviction in the stock market’s strength was in 2007 right before the crash and crisis. Check out the charts here.
What this means for investors: In the aftermath of the 2008 crash, gold nearly doubled in price. If we are approaching another painful correction as it appears, now is the time to protect your money.
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