Credit Downgrade and Gold Prices
Categories: None | Tags: Gold
How would a downgrade in America’s credit rating affect gold prices? The sharp rise in the price of gold this week is probably a good indicator. Gold was trading at about $1585 per ounce Friday morning, and had rocketed to a new high above $1625 per ounce this morning Wednesday July 27th. Perhaps more indicative is that gold was trading around $1485 per ounce just 27 short days ago on July 1st.
The US House of Representatives and the US Senate are both trying to hash out deals that would raise the debt limit and decrease spending, but many analysts are now saying that it’s too little too late, and that a credit rating downgrade from AAA to at best AA is virtually inevitable.
Let’s hope that the experts are wrong on this one and our lawmakers can somehow prevent a default on America’s debt and/or a downgrade in our credit rating. America’s credit rating has never been downgraded, and the consequences would be far reaching. Gold Prospectors like to see high gold prices, but not at the expense of America's economy and credit worthiness.
UPDATE: Standard and Poor's, one of the major credit rating agencies, has officially downgraded America's credit rating from AAA to AA+ for the first time ever. The United States has held its AAA rating since 1917, which made US Treasury Bonds one of the worlds safest investments and allowed the government to borrow money at extremely low rates. The downgrade occurred Friday evening, so we can't be sure exactly what will happen until Monday morning. The downgrade has added a tremendous amount of uncertainty to an already cloudy outlook. Gold closed at 1663.40 on Friday, and it's difficult to ascertain to what extent the credit rating downgrade has already been factored in to Gold prices. This downgrade was thought by many to be inevitable, so the price increase over the last couple of weeks must have been somewhat tied to a likely credit rating downgrade.
The credit downgrade itself may not have much of an effect on Gold prices, but the actions that policy makers take in the coming weeks and months will have a tremendous impact. These actions may in fact affect Gold prices more than any other single factor. Interest rates will naturally rise due to the lowered credit rating, and if a new round of printing money occurs in an attempt to artificially lower interest rates, look for the price of Gold to make a major move upward. Printing money that's not really there weakens the dollar, and a weaker dollar means higher Gold prices.
July 27, 2011 | Share: