Posted January 23, 2023
By Zach Scheidt
Your Playbook for Surviving the Debt Crisis
The debt-ceiling crisis is looming, and we may be in trouble sooner than expected.
Last week Janet Yellen declared that the U.S. has already bumped up against the country’s $31.4 trillion debt limit.
The Treasury began taking "extraordinary measures" to keep the government operational until we reach a long-term solution. But until then, the crisis remains a ticking time bomb.
And just like one of those cookie-cutter action movies, tension is building as the clock ticks down.
Last week we talked about how Treasury bonds may be your best hedge against a U.S. debt crisis. (If you didn't get a chance to read the alert, I encourage you to click the link above to understand how this hedge can protect your retirement.)
Today, we're going to look at another debt crisis hedge that is already on the move.
Gold Is Setting Up for a Historic Run
If you're worried about the U.S. debt ceiling — or inflation, recession, geopolitical tensions, the bear market, or any number of other risks — gold looks like a timely and strategic investment.
Take a look at the chart for gold below...
For the past couple of years, gold hit resistance at around $2,000 per ounce.
This may sound paradoxical because gold is typically a great long-term hedge against inflation. But even with inflation hitting a 40-year high last year, gold didn't soar like you might think.
Here at Rich Retirement Letter, we've talked about why gold’s price didn’t rise as you’d expect it to during such an inflationary period.
First, the strong U.S. dollar kept gold’s price low for much of the past year. That's because it takes fewer dollars to buy stuff, including gold, when the dollar is strong.
Second, crypto as an alternative investment pulled money away from gold and into popular digital currencies (at least for a season).
But now both of these trends are reversing: The dollar is trading lower (more details in a moment), and cryptocurrencies have lost much of their allure.
Without this major headwind holding gold back, I expect a surge higher this year. In fact, gold could trade as high as $3,000 per ounce in the next 12-18 months.
Another Catalyst for the Gold Breakout
What could cause gold to finally push definitively above its $2,000 ceiling? The U.S. debt crisis! Here's how I see it playing out...
As we talked about previously, the last U.S. debt crisis caused long-term Treasury bonds to surge higher.
And if you follow the ripple effects this surge would have on other financial markets, you can see why I'm so bullish on gold.
Higher long-term Treasury bonds naturally cause interest rates to plummet.
That's because when you pay more for a bond, you're getting less yield for every dollar you invest. So when bond prices surge, market interest rates automaticallyfall.
If interest rates in the U.S. move lower, investors have an incentive to pull capital out of Americaand put that capital to work elsewhere. As bonds surge, we can expect foreign capital to flow out of U.S. dollar-denominated assets.
When this happens, the U.S. dollar will naturally trend lower. We're already starting to see weakness in the dollar, but the trend could pick up quickly.
Similar to what I mentioned earlier, it takes more dollars to buy stuff like gold when the dollar is weak, which means the price of gold moves higher.
If we follow the ripples from the U.S. debt crisis through international markets and back around to gold, we can see a strong catalyst to drive gold well above $2,000 per ounce.
I'm convinced that we're already in the early stages of this happening, which is why gold has moved sharply higher over the last three months.
If I'm right, the surge in gold is just getting started.
That means there's still time for you to invest in physical gold, gold ETFs, gold mining stocks, and other plays that benefit from rising precious metal prices.
Make sure you're in a position to protect your wealth as we move into a historic period for the U.S. debt crisis.