God’s Words of Strength to His People During Financial Turmoil
Would Resolution of Fiscal Cliff Drive Gold Prices Higher?
Midas Fund Portfolio Manager Tom Winmill on the factors that could boost the price of gold.
Why the Fiscal Cliff is Good for Gold
First and foremost, the fiscal cliff creates economic uncertainty. We’re already seeing that: Just the anticipation of the impasse in Washington has caused many businesses to freeze hiring and cut back on investment and expansion. Since time immemorial, gold has been a top safe haven investment during times of uncertainty and fear.
Secondly, if the tax increases and spending cuts occur, the U.S. will fall back into a recession, causing the Federal Reserve and the U.S. Treasury to flood the economy with even more dollars. This monetary tide will stoke inflation and likely send gold well beyond $2,000. Two rounds of quantitative easing (QE) have expanded the monetary base by more than $2 trillion, and gold has soared to nominal record highs. The third, “unlimited” round of QE is just getting started, and a recession would force the Fed to go even further than the $40 billion a month it has pledged for QE3.
If a compromise is reached, the U.S. government will have to figure out how to pay for whatever that agreement brings. The Republicans want to decrease government spending and cut taxes, while the Democrats want to increase spending and taxes. Something has to give, but one thing is clear: There won’t be enough money to pay for everything. The debt ceiling will have to be increased, the government will have to borrow more money, and fewer and fewer investors will want to take on our debt (in the form of U.S. Treasuries).
The important thing investors can do now is protect their portfolios with gold. Just a 15% to 20% allocation will give investors the insurance they need as our nation stares down at the edge of this gaping, uncertain fiscal cliff. If our lawmakers don’t tread this tightrope carefully, investors will be glad to have invested in a golden parachute.
Learn more about how buying gold and silver today is a smart move for your investment portfolio.
» Contact Cornerstone Asset Metals today to learn more about buying gold as an investment.
» Read our article: Why Gold is Going Up Today?
Past performance is not an indication of future potential values.
Related posts