Record US deficit means GCC should buy gold

Here is the latest gold chart from the respected CliveMaud.com showing gold prices in their usual summer lull.

But if anybody needs a reason to understand why GCC diversification away from the US dollar into gold makes very good sense, they need only consider the following news report from AP about the US deficit and think what that must mean for the value of the dollar and treasury bonds.

‘The federal deficit has topped $1 trillion (Dh3.67 trillion) for the first time and could grow to nearly $2 trillion by this autumn, intensifying fears about higher interest rates, inflation and the strength of the dollar.

The deficit has been widened by the huge sum the government has spent to ease the recession, combined with a sharp decline in tax revenues. The cost of wars in Iraq and Afghanistan also is a major factor.

The soaring deficit is making Chinese and other foreign buyers of US debt nervous, which could make them reluctant lenders down the road.

It could also force the Treasury Department to pay higher interest rates to make US debt attractive longer-term…

The Treasury Department said on Monday that the deficit in June totalled $94.3 billion, pushing the total since the budget year started in October to $1.09 trillion. The administration forecasts that the deficit for the entire year will hit $1.84 trillion in October…

Congress already approved a $700 billion financial bailout for banks, automakers and other sectors, and a $787 billion economic stimulus package to try to jump-start a recovery. Outlays through the first nine months of this budget year total $2.67 trillion, up 20.5 per cent from the same period a year ago.

There is growing talk among some Obama administration officials that a second round of stimulus may eventually be necessary…

In the meantime, the US debt now stands at $11.5 trillion. Interest payments on the debt cost $452 billion last year – the largest federal spending category after Medicare-Medicaid, Social Security and defence.’