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As if the U.S. economy hasn’t had enough woes this year, it now faces a potential debt ceiling crisis.
Treasury Secretary Janet Yellen recently warned lawmakers, “After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”
If the U.S. defaults on its debt, it will be unable to pay its bills, rocking global financial markets and resulting in what Yellen predicts would be “an economic and financial catastrophe.”
This news has investors understandably worried about protecting their money should the worst occur. Gold has become increasingly popular this year as investors seek to shield their portfolios from persistent inflation and other economic issues. With this latest concern on the horizon, will it continue to be a wise investment? We asked experts for their opinions.
What U.S. debt default could mean for gold
A debt ceiling crisis would have a wide range of implications for your finances. Here’s how it could affect gold investing.
It could hedge against panic
When the economic news is dire, gold tends to shine. In the event of a debt crisis, investors will likely continue to turn to gold to shield their money from the fallout.
“For those that are truly concerned about a potential U.S. debt default, gold is probably the best hedge as it does well during times of panic,” says Noah Damsky, CFA and principal of Marina Wealth Advisors. “Treasuries can be a go-to during times of stress, but when the stress is directly related to Treasuries, they may not serve as the cushion we thought. As a result, gold could be a great short-term hedge since Treasuries would be at the center of the storm.”
Whether or not a debt ceiling crisis materializes, economic panic will surely rise again. By adding gold to your portfolio today, you can make it easier to ride out such fears.
Its value will likely hold steady
Gold has been a trusted store of value for centuries. It isn’t as subject to the whims of market forces as assets like stocks, making it a good way to protect your portfolio from losses. It can also serve as a reliable source of cash when the dollar’s purchasing power plummets.
This makes it a solid investment at any time, but especially when a crisis looms.
“Investing in gold during a time of economic uncertainty, especially when it comes to the national debt ceiling, can be a wise decision,” says Hanna Horvath, CFP. “Gold is typically a stable asset that holds its worth over time. The precious metal is often not affected by inflation or fluctuations in currency values, making it a go-to option for investors looking to safeguard their assets. If the United States defaults on its debt, gold may prove to be a wise investment choice.”
Find out if gold investing is right for you by requesting a free investors kit here.
Prices could continue to rise
Gold prices have reached near-historic highs this year, and that trend is likely to continue if the U.S. defaults on its debt.
“I believe that the extremely high levels of debt for the U.S. and the rising deficit might eventually lead to a credit crisis where gold increases dramatically in price,” says Doug Carey, CFA, president and owner of WealthTrace, who notes that “more money creation by the Federal Reserve to buy the debt… would send gold prices much higher.”
Because gold is best viewed as a long-term investment, it’s worth considering at any price. High prices simply indicate it’s in greater demand — a signal that economic conditions make it especially valuable.
The bottom line
With debt ceiling negotiations at an impasse, gold remains an investment worth exploring.
“[I]f the U.S. defaults on its debt, investing in gold would definitely be a wise investment for several reasons,” says Jeffrey Wood, CPA, CFP and partner at Lift Financial. “Gold has historically been a reliable asset, especially during financial crises, and investors usually will move to gold as a safe investment. It tends to maintain value over the long term against inflation and currency devaluation, is good for diversification and will increase in demand. It is highly liquid and would be very valuable if the U.S. defaults on its debt.”
That said, as with any financial decision, it’s important to do your research and take your specific goals and needs into account.
“Whenever I am working with a client, I am very careful to ensure that whatever recommendations I make for them are prudent in conjunction with their risk tolerance, time horizon and overall financial plan,” Wood says. When in doubt, consult a financial advisor for the best guidance for your situation.
