US Debt Does Not Indicate Higher Gold Prices

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The issue of US debt was certainly brought to the foreground during the government shutdown. As we reported, the federal debacle, which was a result of the folks at Capitol Hill failing to come to an agreement on the debt ceiling as well as the federal budget, greatly impacted the financial markets. The fact that the politicians finally came to some sort of solution (although temporary) allowed investors a sigh of relief.

However, for contrarian investors and specialists in the gold sector, US debt spells doom for the US dollar.

Gold Insiders Believe The Physical Asset Will Rise On A Falling Dollar

Egon von Greyez, a renowned name in the gold sector, believes that gold prices will rise in a parabolic fashion on the back of a fast declining dollar. Greyez, who is the founder and managing partner of Swiss-based Matterhorn Asset Management, also known as GoldSwitzerland, points at US debt saying that although it took 200 years for debt rise to $8 trillion in 2006, it has now risen to $17 billion over the past seven years. Evidently, Ben Bernanke’s quantitative easing approach is not popular with gold insiders.

Greyez points out that Europe, Japan, and China are facing their own problems and that none of them will be able to bail out the US when it is crushed the under the weight of its own debt. Admittedly, the credit bubble in China is a concern, as is Japan’s debt and Europe’s unconvincing social structure.

However, the big problem remains in whether or not to believe these gold insiders. Not only do they have a vested interest, considering they buy, sell, and transfer precious metals, but there are also other strong reasons why the US dollar will not fall, and more importantly gold prices won’t shoot up extraordinarily.

Complexity Of Global Economic System Acts As Insurance

As economic integration and bilateral trade between countries steps up, the complexity of the global economic system also increases. This has brought about non-linear relations where one wrong move can bring down economic goliaths like a set of dominos. Does anyone want this?

The recent turmoil in the Arab world started as a simple unemployment protest in Tunisia. This later developed into protests against unequal distribution of wealth, poor governance, and lack of freedom, which spilled over and affected countries such as Egypt and Syria. Saudi Arabia and the United Arab Emirates avoided this gloomy fate by using high oil prices to sustain popular government spending programs for social welfare. If the dollar plunges, oil prices could dip as low as $10 per barrel, down from the typical $100 plus. This is certainly not something that the stable part of the Arab world would want. Not to mention, China, among many other economies is heavily invested in the US.

Because of the intricate nature of the world economy, a drastic fall in the US dollar cannot happen; and if it does, then call it the financial apocalypse. Gold prices will rise. Not because of a battered dollar, but because of the purely normal need to constantly hedge against risks.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.