Gold and Silver Are Winners: Debt Ceiling Looms As another Catalyst to Keep Precious Metal Rally Going

From bank failures to rising interest rates and still high inflation, investors around the globe are rushing into precious metals for safety, portfolio diversification, and as an asset to grow their wealth.

Gold is up 10% since the start of 2023 and recently raced above the $2,000 an ounce level. Silver is up 4% and looking ahead Wall Street remains positive on precious metals. Citigroup has a bullish forecast for gold climbing to the $2,300 ounce level in the near-term. And, a new forecast from a BofA Global Research report says a gold market close above $2,078 on both a daily and weekly basis “would go a long way in signaling significantly larger upside…such as $2,391/2,543.”

Shifting to the macroeconomic environment for a moment, some may wonder what could be the next catalyst for another upleg in gold?

Two words: Debt ceiling.

While the debt ceiling confrontation has fallen to the background in the wake of the banking system turmoil, it still has potential to trigger a new round of chaos in the financial markets.

Congressional leaders are bracing for a high-stakes standoff over raising the debt ceiling in the months ahead. Back in 2011, Congress took the nation to the brink of default with its in-fighting over raising the debt ceiling. Those political shenanigans were costly – the incident resulted in a Standard & Poor’s downgrade of U.S debt. Barron notes that that has meant the yield on U.S. Treasuries has consistently been one to two percentage points higher than German government bonds since that time.

What could this mean for gold in 2023?

The last time Congress held the debt ceiling hostage and took the U.S. to the brink of default was in August 2011 and gold soared to its then all-time high above $1,900,  as global investors turned to the precious metal as a safe haven.

A debt ceiling standoff 2.0 in 2023 would open the door for another round of massive gold buying, as investors rush to the safety of precious metals, which are attached to no government debt or obligations like the U.S. dollar is.

What could happen if Congress doesn’t raise the debt ceiling and the U.S. defaults on its debt payments?

As we’ve talked about before, a Congressional failure to raise the debt limit would destroy the global market’s confidence in American Treasuries and the U.S. Dollar the reserve currency. It would trigger a recession in the U.S., causing millions of Americans to lose their jobs and the stock and bond markets would crash. Social Security checks would stop coming. Interest rates would soar because in order to continue funding the massive U.S. debt,  America would be forced to pay extremely high rates of interest on new bonds because no one would trust Treasuries anymore.