The likelihood of the United States defaulting on its debts grows with each passing day, which has many investors seeking ways to minimize risk through safe haven assets such as gold. Findings from a recent survey show that investors seeking protection in case America’s debt ceiling crashes are mainly flocking to this particular precious metal.
The survey highlights that most finance professionals chose gold as their top pick to buy if Washington does not honor its obligations. Gold’s popularity during times of uncertainty is based on the metal’s ability to retain or increase in value during market turbulence or high inflation.
These professionals chose alternative hedges as their second pick for assets to purchase in the event of a default. Currently, there seems to be a shortage of alternative hedges, which is nothing short of ironical. The survey’s respondents also noted that the risks this time were bigger than past debt-limit crises.
During the 2011 debt ceiling crisis that caused a credit rating downgrade by S&P, there was a surge in treasury purchases that took the 10-year yield to a record low while gold rallied.
Jason Bloom, Invesco’s head of ETF strategies, alternatives and fixed income, shared statements that seemingly agreed with the respondents. Bloom noted that polarization between Congress and the electorate increased risk, explaining that both sides needed to come to an agreement soon.
The price of gold may soon hit its all-time high of $2,075.47 per ounce, having enjoyed a good run this year. The metal has been kept afloat not only by increasing demand from luxury buyers in China but also upheaval within the banking industry as well as the looming threat of debt default by America.
Most of the investors who took part in the survey also expect a rally in 10-year treasury instruments if America doesn’t default but the debt ceiling remains uncertain. In the event that the U.S. does default, some retail-level investors forecast that 10-year government bonds debt to be less lucrative. Currently, the debt ceiling stalemate has increased the return on some short-term securities.
Priya Misra, TD Securities Head of rates strategy, expects Congress to increase the debt ceiling once the market applies pressure following a short default period. Other investors are of the opinion that this impasse has also affected the dollar, with 41% noting that if America defaults, the dollar’s standing as the primary global reserve currency will shift.
This comes after an earlier survey found that most respondents expect the U.S. dollar to account for less than one-half of global reserves in 10 years.
As the uncertainty over whether or not the United States will default on its loan obligations grows, investors could pay keener interest in not only buying physical gold but also adding gold stocks such as Royal Gold Inc. (NASDAQ: RGLD) to bolster their portfolios.
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