What happens to PMs if debt ceiling is raised?

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Vic
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What happens to PMs if debt ceiling is raised?

The way I see this reported is:

1. If the debt ceiling is raised, that means more of the same borrowing and deficit spending our government loves so well. That should keep the PM prices in their long-term up trend. However, will there be a short term price collapse as HFT algos and hedgies abandon the safety trade of PMs and jump back into the guaranteed spike in stocks?

2. If the debt ceiling is NOT raised, my guess is that some percentage of bond holders will flee into commodities, including PMs. However, would there also be a side-effect of strengthening the dollar, at the expense of bonds and PMs dominated on dollars?

I obviously have a terrible grasp on this. My question is "Will a debt ceiling increase be negative for PMs?"

Edited by admin on 11/08/2014 - 06:05
Dr Durden
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I'd be more concerned with a

I'd be more concerned with a run on the banks in the case of default. PM's are not money (circulated means of transaction?) right now, so be realistic.

But yea, the more probable scenario, in my mind anyway, is same shit, different day, kick the can, etc. Benflation steps up, expands his balance sheet to grotesque levels, risk trade resumes...next stop $50 and $1650, etc. The question is when and how heavy on the throttle will the "easing" be. Knowing the previous "easings" have been a flop, this could very well be the Mother. Sill might need to see Blankfein and Dimon cry like a babies before, but who knows.

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FalseParadigm
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Precisely

There WILL be a deal don't you worry.

As we saw yesterday courtesy of ZH a simple RUMOR about a debt ceiling deal with $1.5 trillion in cuts over 10 years sent PMs down for a little.  Let's see what happens when an ACTUAL deal is announed.

Mid to long term a debt deal is hugely positive but short term is negative.  I've been saying it for a while.  Bernanke will use deflation fear to knock the markets down in order to get his QE3.  It's already showing up in the economic stats.

PPI and CPI both below expectations (suggesting that inflation is [supposedly] transitory; just like the Bernank said)
Manufacturing is down (has been for a while)
Consumer sentiment is down to lowest levels since March 2009

Obviously long term gold and silver will go to the moon.  I suggest people stop making predictions of dollar valuations for the metals simply because when the fiat currencies collapse it won't matter.  Gold and silver at that point could be worth an infinite number of FRNs because paper will be completely worthless.  But in the short term I'm sure the markets will flow into treasuries with [temporary] renewed confidence as the deal will come with SOME long term deficit reductions [plans that they can always change].  

I can't possibly forecast how hard the metals will be hit.  Highly unlikely that they'll get smacked down like they did in 2008.  But could we see gold less than $1500 and silver less than $33?  It's possible.

Keep stacking but be prepared for a final gift by the banksters. 

TREACHEROUS CRETINS
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Current Event Analysis

SeverinSlade - I was enjoying your contributions to Pailin's Trading Corner and look-forward to what you might have to say over here. I think that a global political/economic view has as much if not more to offer than Technical Analysis and charts as we've seen with instant price reactions to events in Greece and Italy. I very unwisely sold out beginning May 1550/47 expecting price declines with Summer/end of QE and have been looking for a buy-in moment; totally caught out with the whoosh this week. I'll obviously have to do it in increments. Trying to maintain equilibrium between short-term bears and bulls is doing my head in.....Looking to put a toe in the water if we have a quiet week coming. With the games the rating agencies are playing I will not be surprised to see focus on Spanish banks soon. All the best.....

FalseParadigm
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Thanks

Other posters made a good point that I should move my analysis to a different venue which I do agree with.

Thank you for your support.

I have been merely trying to show people that while technical analysis is important it does not tell the whole story.  All the indicators in the world can signal that something is a buy only to see it continue to drop. 

News is extremely important when it comes to aggressively buying paper silver or gold as well as deciding when to buy heavily into the physical metals.  I continue to advise people to buy physical at all levels and keep on stacking HOWEVER I do not agree that people should go all-in at these levels.

I sold into the rally the past few days and maintain core positions in my mining companies.  I do however have a sizeable cash reserve ready to deploy when the dip I am forecasting comes.  And mark my words, it WILL come.

I continue to point out to people that a deal is guaranteed.  McConnell and Reid already have a plan B set up if Congress can't reach a compromise.  Also, a weak RUMOR of a deal yesterday sent the metals down off their highs.  If gold and silver were going to skyrocket from these levels they would be.  Instead I see extremely indecisive trading.  As ZeroHedge and others have pointed out QE3 will NOT come until equities/commodities/metals trade down significantly.  I believe that gold and silver will hold up much better than the other markets, but to believe that they will be immune to any correction is a bit naive.  Remember, Bernanke is already beginning to use the fear of deflation to scare the markets down.  History shows that precious metals don't skyrocket during deflationary periods (not that we're actually GOING to have deflation, but if the fear exists, it will temporarily send metals down).

FalseParadigm
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Questioning myself

Have been speaking with some more experienced investors...

I'm currently re-evaluating my own analysis.

Seems like what's happening is completely irrational, but maybe that's the point.

As of right now it seems like the consensus is:

If a debt deal is passed it's not really relevant.

As equities tank, investors will use the dollars they receive and immediately convert them into precious metals (with overall confidence in fiat money now shattered).

My only question is if that's what is supposed to happen then why did gold and silver trade down yesterday following the rumor that the Dems & Repubs had reached a deal?  Also, why did gold and silver trade down yesterday when Bernanke essentially said that QE3 will not happen unless the SHTF?

SE
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Which way is it going tonight?

At 5 PM today, Sunday night, which way is gold/silver going?

A deal is announced before 5 PM tonight, after last-minute wrangling by Congress, sending gold/silver on a waterfall decline similar to May 1st.

No deal is reach tonight before Hong Kong opens at 5 PM, and gold/silver holds steady, could climb.  I hear there's additional stuff going on with 9 banks failing in Europe and the markets having their say about that part of the chaos Monday morning their time.  Gold/silver could climb on that news even further.

I looked at a 32-year chart of gold's seasonal behavior, and it looks we're about a month ahead of its average pull-ahead behavior.  Of course, these are very different circumstances right now.

Did you know that it's possible that if no deal is reached, I may not get my SSDI check come August 3rd?  What's going to happen at Walmart that morning?  Looting in protest of no check?  Bills and rent will not get paid.  This will have a ripple effect everywhere.  I so would not be anywhere near a Walmart that morning!

Three and a half hours, bitchez!

FalseParadigm
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I was wrong

Hey I was wrong.  I'm man enough to admit when I am.

So here's the question I have for where gold and silver go when news on the debt ceiling deal breaks.

Scenario #1

The house and senate agree on a deal that proposes "significant" spending cuts over 10 years (4+ trillion).  Money flows into treasuries on the "sign" that the US government is "serious" on reducing its deficits.  Conclusion: Short-term negative for PMs (and the dip I originally predicted)

Scenario #2

Congress agrees on a deal that proposes very small cuts (or none at all) which prompts investors to lose even MORE confidence in US debt and to come to the conclusion that Washington is not serious about reducing its deficits.  Money continues to flow into PMs and we will likely NEVER again see a significant dip in PMs as they are now the last and ONLY safe haven.

Scenario #3

Congress fails to reach an agreement.  August 2nd quickly approaches and either one of two things happens.  1)Reid and McConnell get Congress to pass their proposal last second giving BHO full authority to raise the debt limit himself.  This again signals to investors that US debt is junk and PMs are the only way to go.  OR 2)Congress can't reach any type of agreement and BHO uses an executive order to raise the debt ceiling with no cuts AND increased revenues again signalling that US debt is junk.

I'm going to be watching PM movement very carefully following the news of a deal.  A sell off will signal that we should have cash at the ready to buy physical and miners at a discount.  Strength signals all aboard.

Thoughts?

rassillon
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Severin,  Hey man, I think

Severin, 

Hey man, I think having your input is good, however I hope you will take what I am about to say as something to ponder over and reevaluate some of your stances.

This is just an example, you said a couple of times "rumor of debt deal" = "PMs going down"

Now, maybe that is so maybe it is not. I don't know. I do know correlation =/= causation.

So are you sure of that association and if that association is not absolutely correct what else might me off.

Just so you know, I am not criticizing just asking you to be logical and analyze your POV.

Thanks and keep posting.

FalseParadigm
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You're right

Correlation does not always imply causation.  Just trying to think for the future.

FalseParadigm
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Hold on a second

Maybe I was right?  Zerohedge reporting that "silver prices" is currently the #1 searched term in Google trends.

Coming margin hikes from CME paired with a debt ceiling agreement?  Hmmm...And this news breaks right as I'm considering reversing my original projections...

http://www.zerohedge.com/article/silver-surge-2-imminent

Kiwi
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Trading Vs. Gambling

Hey Slade-

You don't seem sure of whether to buy or sell short, so at this point if you did either, I think you'd be gambling rather than trading.

Honestly, I haven't the faintest idea if the deficit deal is already cooked into the price or not, and I don't think anyone does.... so I would guarantee myself a bunch of sleepless nights waiting to see if my gamble won or not. I do know that a year from now the price will be significantly higher, so I'm slowly accumulating and sleep well.

I also know that if QE3 is announced (in whatever form) things will take off and it will be a good time to trade.

The man who sto...
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Sell the news event

We've had a good run on gold and silver, if PMs don't correct before the debt ceiling announcement, I believe this news will trigger a minor correction in PMs, presenting a great BTFD opportunity.  Nothing scientific, just my gut.

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Yeah but that just means

Yeah but that just means "game on" for QEIII. If there is no debt ceiling raised that means no more QE is possible. The only reason to raise the debt ceiling is to increase spending. The only reason. What have we learned from the Turd via Santa? QE(n). So, QEIII is the end game of raising the debt ceiling.

Honestly, I see all scenarios as positive for PM's. Like the poster mentioned above maybe a short term drop when announced, but it really depends on the scope of the agreements.

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FalseParadigm
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Not trading

I'm actually just sitting tight hanging onto my core positions with some cash on the side ready to BTFD (if one comes).  I would never, EVER short silver.  Sorry that's like playing Russian Roulette with 5 bullets in a 6 shooter. 

I'm really just thinking aloud.  Just trying to capitalize on any weakness if it does present itself. 

Dr Durden
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ZH does a good job of

ZH does a good job of highlighting just how vacant the volume in the market is. This combined with the insider action leads me to believe the "smart money" has pretty much left. Plus, there's no such thing as a tripple top. So it either takes off to 15,ooo or downward pressure takes the ass end out.

http://smartmoneytracker.blogspot.com/

I'm shorting until the Dow:gold is 3:1 and will revaluate my asset allocation at that point. I personally don't think equities are worth more than 2:1 but guess I'll know more by they time we break down/melt up. Could be years, who knows.

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