Dollar Heads Higher – Pressures Gold October 2, 2017 The price of gold still under pressure this morning as the Dollar continues to head higher. All bad news for the longs as the Equity Market, the S&P 500 and the Nasdaq are ready to set another historic record level today. CME Open Interest continues to decline as more and more Gold Future investors head for the exits. Higher interest rates are expected to emerge at the FOMC meeting in December as the odds makers put it at a 77 percent chance of happening. Gold ETFs showed outflows overnight as many believe the strong inflows in the Gold ETFs in the last two weeks will reverse as the price continues to head lower. I looked high and wide to find some good news for the price of gold, but came up empty handed. Possibly the only encouraging news regarding the price of gold is that the sell off has been orderly and Gold hasn’t taken a big hit along the way. But one has to ask, how long can the U.S. Dollar and Treasury yields continue their march higher? All markets need to correct at some point. I guess we will just have to wait and see. World Debt The United Kingdom’s consumer debt increased nearly double digits in August, increasing 9.8 percent from a year earlier as the Bank of England expressed concerns that there is a pocket or risk developing from credit cards and car finance deals. No different here as America’s individual consumer debt is at historic highs. With such an income disparity across the globe between the wealthy and the average “Joe” also at an all-time high, folks are not reeling in their credit liability. In fact, based on the figures recently released, it seems like they have a carefree attitude with regards to increasing their debt limits. If this doesn’t sound familiar to you, you probably have not been watching enough TV. The U.S. debt is poised to explode with the proposed tax cuts, Healthcare (we can’t ignore that program forever) and a desperately needed infrastructure bill. And the folks on Capitol Hill seem to be drinking the same spiked Kool-Aid the rest of the country is enjoying. But eventually, that drink will give them stomach problems that they will never be able to recover from. The world debt clock is ticking and now sits at over 65 trillion dollars with the U.S. responsible for over 20 trillion dollars of that figure. And if any of you have looked at what the major credit card companies charge you for their credit, you must realize that if you just pay the minimum amount, assuming you don’t add any more charges and depending on the balance, it might take you over 10 years to pay it off. Is there any chance America can pay off its debt? At its most basic level, a default is when a person or an entity cannot repay a debt on time. For instance, when a person can’t make a payment on a mortgage or a car loan. When a country does this, it’s known as a sovereign default. This is when the country cannot repay its debt, which typically takes the form of bonds. So if the U.S. were to default, it would essentially stop paying the money it owed U.S. Treasury bond holders. A quick refresher: the U.S. government spends more money than it collects in taxes. So to make up the shortfall, it raises funds by asking investors to buy Treasury bonds. Investors, such as the Chinese government and pension funds, do this because these bonds are seen as a safe place to invest money. Currently, China holds almost one third of the U.S. Treasury bonds and notes. That’s just one small reason China better put the clamps on Kin Jung Un. They have too much economically at risk. Anyway, what would be the consequences of a U.S. default? No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise. This is because if the US government could not repay the money it owed bondholders, the value of the bonds would decrease and the yield – the return the government pays to an investor – would rise. This is because it would be perceived as a less safe investment. This would prompt interest rates around the world, which are often tied to those of U..S Treasuries, to spike. America has never defaulted on its obligations, but the train is headed for a serious derailment if the powers that be in Washington keep us on this path. Stay tuned and strive to be debt free. On another note: Our prayers go out to the families who lost loved ones overnight in this horrible event in Las Vegas. Have a wonderful Monday. Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. 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