The US Fed’s Dilemma

As gold slid down this week on growing speculation of a raise in interest rates sooner than expected in the US, we should pause and consider they also just hit a record debt to GDP figure of 102% and wonder why that is not getting the headlines?  In July the US budget deficit grew another $95 billion taking the fiscal year to date deficit to $460b.  So far this fiscal year the US has borrowed 15.7c of every dollar it has spent and now carries the burden of no less than $17.7 trillion.  

Their dilemma is to either raise interest rates and increase payments on their debt and risk driving the US back into a depression; or as Kirk Lindstrom puts it “If the Fed makes the same mistake it made in the past, keeping rates too low for too long and we get massive inflation where they have to raise rates to double digits again to crash the economy and contain inflation, then gold should soar.”  

So whilst pundits have bet this week on an earlier rate rise by selling gold and buying shares because ‘all is good’ right now, they should maybe pause and both look below the surface of these employment numbers as we have reported before, and look ahead to a Wall Street without QE and past behaviours, and see a bit of gold as a very wise part of a balanced portfolio ready for either eventuality.