On Tuesday, Congressional budget analysts issued a new warning about the long-term U.S. budget outlook. According to MarketWatch, the Congressional Budget Office (CBO) said that the U.S. national debt is now 73% of gross domestic product, the highest in history except for a brief period around World War II. This number is twice the size it was at the end of 2007 just before the market crashed.
This news should serve as a reminder to investors that the main reason to own physical gold is debt. As the country’s debt rises, its currency loses value. As the U.S. dollar loses value, inflation increases. Almost every expert agrees: physical gold, such as gold coins and gold bars, is an excellent way to protect an investment portfolio against inflation.
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Gold prices spiked again on Thursday to $1,364 an ounce (a 4.37% increase), just a day after the Federal Reserve announced that it will continue the bond-buying program indefinitely. The only thing really working against the yellow metal is the surging stock market. This news about debt, however, may be a stark warning that the market’s record gains may only be temporary.
In this current economy, most financial experts are not wondering if the dollar will collapse, but when. Mounting debt will cause creditors to lose faith in the U.S. government’s ability to repay debt. Since the gold standard is a thing of the past, the government’s credit rating is the main driver behind the value of the dollar. In addition to debt worries, the Federal Reserve will continue to pump more and more money into circulation, a double whammy to the dollar’s value.
As more information surfaces about the actual size of the national debt, investors will be driven faster than ever to the stability of physical gold.