Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20

Market Oracle FREE Newsletter


Gold Overbought as New U.S. Debt Issuance Hitting Congress Limits

Commodities / Gold & Silver 2009 Sep 15, 2009 - 12:38 AM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleWell, the U.S. has another debt problem in the making. This one has been visited before on a regular basis. The U.S. is running out of the ability to issue new debt. So much debt has been issued that the U.S. is bumping up against the statutory debt limit, which is set by Congress. That limit, now don't laugh, was intended to keep the U.S. government from being a runaway debt machine.

In the table above is listed the current statutory debt ceiling of the U.S. Second line is the currently outstanding public debt of the U.S. government. At $11.8 trillion, it is just slightly below the statutory limit. Admittedly, having Congress set the debt limit is the equivalent of the patients being in charge of the asylum keys. The Obama Regime has already requested that Congress raise the statutory limit. As the U.S. Congress votes like lemmings, we expect it to be raised. So presumably we should not fear running out of U.S. debt. We are, however, more optimistic as at least one member of Congress has been willing to speak up. Now, if we could only get the other 534 to do so.

More shocking are the last two lines in that table. The real deficit of the U.S. government over the past twelve months has been $2.1 trillion. Forget the silly number released by the U.S. Treasury, as that is the unified budget deficit. That concept was invented to hide the real deficit from the public. The unified budget deficit includes the current surplus of funds going into the Social Security System. Those funds, rather than remaining available to pay future benefits, are then invested in U.S. government debt. A true daisy chain of government finance if ever there was one.

That $2 trillion dollars must be financed in one of three ways. The debt can be bought by either U.S. savers, foreign central banks, or monetized by the Federal Reserve. With the failing and fading Obama Regime now starting a trade war with China, monetization looks increasingly necessary. With a trade war likely to reduce Chinese purchases of U.S. debt, monetization may be the only choice. That means longer term the dollar falls in value, and $Gold rises to more than $1,700.

But, Gold Bugs also have to live in the short-term. After the excitement in the Gold and Silver markets of the past two weeks, we may feel a let down if Gold does not keep steaming upward. Gold Bugs have been waiting, craving, and calling for $1,000+ Gold for a long time. Do they know what to do now that it has arrived? Remember, we only have three choices, buy, sell or hold.

An analyst has a two fold assignment. One is to determine what should happen in the markets. Second task to acknowledge and interpret that which has happened in the markets. The latter is perhaps the easiest, as it simply is the regurgitation of history.

Should the month of September continue in a positive fashion we would have a serious indication, perhaps confirmation, of the beginning of Wave V. However, that does not mean the move will be straight up as every major wave has subwaves. Further, quite simply too much optimism has been generated in too short of time. The emails and web sites are full of the kind of talk that exudes emotion rather than analysis. Wild rumors have been rapidly disseminated. A favorite is the secret plan by the G-20 to eliminate the dollar as a reserve currency by the end of the year. Hello, the G-20 could not agree on a pizza order by the end of the year.

While a raging long-term Gold bug, a question arises. Why is Gold going up? None of the traditional reasons seem to exist. No financial crisis exists. The terrorists seem quiet. AfPak is a problem, but the insurgents probably will not get control of the nuclear weapons there till next year. Inflation seems non existent.

We do, however, have the Obama Regime continuing on a determined path to destroy as much U.S. wealth as possible. A growing lack of confidence in U.S. leadership could indeed be a factor in the fall of the dollar, and the consequent rise of Gold. As an indication of the falling popularity of the Obama Regime, a non rigorous review of the 180 magazines on display at the public library was made. Of those 180 magazines, only one was observed with Obama on the cover.

$Gold should be rising if, one, lots of U.S. dollars were being printed, or, two, if the investing public was making a major asset shift to Gold from other investments. As we will again explain in the coming issue of The Value View Gold Report, quantity of U.S. dollars is not expanding. If quantity of U.S. dollars is not expanding, U.S. inflation should not rise and the value of the dollar should not fall.

As $Gold is rising without readily apparent fundamental support, we must assume that technical and momentum driven buying are at the heart of this move. As that is the case and $Gold is extremely over bought, as shown in the above chart, investors should step aside till calm returns to the market. In the case of Gold stocks, many have been driven to over valued levels. That condition is especially true among the smaller Gold companies. Investors may want to consider reducing these holding, and buying the stocks back perhaps 25% lower in price.

While highly excited about the recent move to more than US$1,000, we would await the next period of price weakness before adding to holdings of Gold. When emotions are running rampant best to take the hand off the mouse, and relax. A better buying opportunity in the long march to $1,700 will arrive. Your Gold has already allowed your wealth to compound at a far greater rate than the returns produced by almost all Street investment managers. That was accomplished by careful analysis and patience, rather than emotional buying. Remember, the secret is to buy low, and never sell in a bull market.

By Ned W Schmidt CFA, CEBS

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to

Ned W Schmidt Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules