Can the USA still be saved? Why pessimists are buying gold now
Chaos is spreading in the U.S. House of Representatives, but how much longer until the dollar exchange rate and the price of gold react?
Chaos is never America’s friend. With these words, former Vice President Mike Pence aptly sums up the situation surrounding the removal of the previous Speaker of the House of Representatives, Kevin McCarty. Never before in history has anyone been voted out of this office; accordingly, the country is unprepared for a paralyzed Congress that can no longer make political decisions. The markets, however, reacted quickly: investors largely sold their stocks and bonds. Strangely, though, neither the dollar nor the price of gold reacted to the events. How long will that remain the case?
A shutdown would slow America's economic growth
Without an agreement on the budget, the American administration faces a shutdown: the administration would then only be allowed to decide on the most essential matters, and its employees would be placed on unpaid leave. The consequences for the economy would be drastic: the investment bank Goldman Sachs assumes that economic growth would fall by 0.2 percentage points for every week of the shutdown. The rating agency Moody’s also warns of this scenario, as a funding freeze would have a negative impact on the creditworthiness of the USA. This, in turn, would increase the costs at which the USA can borrow money.
Chaos reigns
Meanwhile, chaos is spreading among the Republicans. The party cannot agree on a successor. Even Donald Trump was briefly considered; however, the former and—from his perspective—possibly soon-to-be future president declined the offer. Yet, alongside the Senate, the House of Representatives is an indispensable body for political decisions as part of Congress. Therefore, a new Speaker is urgently required.
Is the USA still a stable partner?
Sooner or later, the currently prevailing chaos will raise the question for other nations as to whether the USA is still a stable economic and political partner. For instance, although President Joe Biden has promised further aid to Ukraine, it remains unclear how this is to be implemented. It also remains to be seen how the chaos will affect the Fed’s current interest rate policy and the dollar as the reserve currency.
Gold is the investor's friend right now
As mentioned at the beginning, the dollar is currently still stable. However, should the currency lose value, gold buyers will have a clear advantage. This is because commodities, and precious metals in particular, move inversely to the dollar exchange rate in terms of value appreciation. So, if chaos is to be America’s new friend in the future, then gold is the investor’s friend now—more than ever before. From a purely technical analysis perspective, now is an excellent entry point for gold—naturally, only with the security of Finomet’s digital use-of-funds monitoring.