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The US Debt Ceiling situation continues to drag on, in this video we discuss the implications on the market if the US does default for the first time in history, and how that could affect the price of Gold.
Watch the video to learn more…
US Debt Ceiling Situation and What This Could Signal For The Markets
Recently, the Treasury Secretary Janet Yellen announced that the US Treasury could be incapable of fulfilling all government expenditure requirements by June 1.
This has brought about the alarming prospect of an unprecedented default on Treasury debt.
The issue at hand is the “debt ceiling” – a regulatory mechanism necessitating the occasional elevation of the permitted debt limit, a characteristic of US financial operations since 1917.
If the U.S. were to hit its debt ceiling and be unable to raise it, the implications could be severe and far-reaching.
It’s important to note, however, that the U.S. has always managed to avoid a default in the past. Discussions about the debt ceiling can often be contentious, but lawmakers have always ultimately agreed to raise the ceiling and prevent these negative consequences.
Default on Debt: The most alarming consequence would be the U.S. defaulting on its debt for the first time in history. This could happen if the government is unable to make interest payments or repay the principal on its debt. A default could severely undermine global confidence in U.S. Treasury bonds, traditionally seen as one of the safest investments in the world.
Higher Borrowing Costs: Following a default, investors would likely demand higher interest rates on U.S. debt to compensate for the increased risk. This would make future borrowing more expensive for the U.S. government, which could, in turn, put more pressure on the fiscal budget and potentially lead to higher taxes or reduced government spending.
Negative Impact on Financial Markets: A default could cause significant turmoil in global financial markets. It could lead to a drop in stock markets, increased volatility, and could potentially trigger a financial crisis.
Economic Recession: In the worst-case scenario, these factors could combine to push the U.S. and potentially the global economy into recession. The uncertainty and loss of confidence following a default could lead to reduced spending and investment, resulting in job losses and slower economic growth.
Impact on the Dollar: The U.S. dollar’s status as the world’s primary reserve currency could be at risk if there’s a default. This could lead to depreciation of the dollar and inflation.
GOLD Analysis
The price on the chart has traded through multiple technical levels and some observations included:
- The price of Gold is trading within its long term range between $2075.00 highs and $1630.00 lows.
- Price has recently rejected the range highs with price potentially moving lower.
- Support could be found at $1950.00 level.
- If the US were to default on its debts, Gold prices could rise significantly.
Have you watched our interview with Week Ahead analysis? You can see it here.
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