When there is a great deal of uncertainty around the world, and especially when there is turmoil and fear in the U.S., people often turn to gold to hedge their other investments.
The potential for risks and uncertainty to rise in the near is not theoretical. I’d say it’s a lock; it will rise exponentially soon. When Congress is back in session mid-way through next month (near September 17th), it will not have a lot of time to avoid a major economic disaster; it must raise the U.S. debt limit.
If they can’t raise the debt limit, you know what will be said in the press: the U.S. government won’t be able to pay its bills and therefore national parks will be closed, people will lose their jobs, veteran’s won’t receive their care, dogs and cats will be living together — mass hysteria!
As many are currently saying, this rise in economic uncertainty will cause a sell-off in the global stock markets and put a bid in the gold market. Additionally, with the current political state of the U.S. one could imagine global investors avoiding other investments, like US Treasuries.
Another one of Wall Street’s prominent investors is recommending gold. Ray Dalio of Bridgewater Associates, the world’s largest hedge fund, has suggested gold as the best protection against the possible risks from the debt ceiling negotiations and other turmoil. “[I]f you don’t have 5%-10% of your assets in gold as a hedge, we’d suggest that you re-look at this.”
During the debt ceiling negotiations that went badly in 2011, gold rallied a lot. In fact, there was a lot of fear leading up to this, which rallied over $400.00 ounce in just a few months.