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Trends & Analysis
News

Gold surges amid US-Iran deal prospects

News

Dow hits record closing high on US-Iran peace deal hopes

News

Nvidia’s stock dips despite Q1 beat, strong forecast

News

CAD falls versus USD following inflation data

News

Gold rises as Trump postpones Iran attack

News

Crude oil surges amid stalled US-Iran peace talks

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Asset Watch

Time to grab a golden parachute?

Wednesday, May 10, 2023

With the debt ceiling drama poised to heat up in the weeks ahead, U.S. Treasury Secretary Janet Yellen warned that a potential debt default could occur as early as Jun. 1. The expedited timeline comes from the less-than-expected federal tax revenues collected in April.
Yellen said a failure to raise the debt limit “could produce financial chaos,” with sources saying she’s been calling CEOs to warn about the “dangerous consequences of the current brinkmanship.”
Sometimes these events are all bark and no bite, while other times, they have a material impact on the financial markets. But, since political divisions are highly polarised in the U.S., hedging the tail risk with gold is a prudent course of action.

The last debt ceiling debacle occurred in 2011. The gold line below tracks the gold futures price from June through September 2011, while the black line below tracks the inverted (up means down) S&P 500.

 

As the negotiations grew more precarious, the gold futures price soared by more than 25% in less than two months, while the S&P 500 declined by nearly 20%. If a similar stalemate occurs this time, the yellow metal should be traders’ safe-haven asset of choice. Though the U.S. dollar often benefits from panic, the greenback tumbled alongside the S&P 500 before recovering in September 2011.

 

So, will this iteration live up to the hype, or have lawmakers learned their lesson from 2011?


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