August 2 is a big date - this is when the US govt essentially runs out of money. Why? Because the US will hit its debt ceiling. Atm there is a huge argument in the US of how much to increase the debt ceiling by, knowing that at the end of the day, the more the US increases its debt ceiling, the more money it prints, and the less its dollar is worth - in fact, since 1990 the dollar has lost over 60% of its purchasing power.
Anyway, whilst this arguement continues to arise, markets will be punished, gold increase as it factors in a default. Your right in that the US wont default, I dont know for sure but I am just betting that way becuase if they dafault it will be dam hard for them to access money markets, their credit rating would be slashed from AAA, unemployment would go through the roof, and there would be a systematic collapse of govts around the world that hold US debt - namely china.
So where does this leave us? Well basically expect more volatility in markets. Gold should increase both short term and long term but why? The answer is becuase gold is used as a hedge against systematic risk and as the US dollar declines in value through increased printing, gold will increase in value as investors choose to invest in something that is worth a value. Its funny that, the US government actually has the largest physical gold supply in the world - even more than china by probably 1000 times. No central banks are selling gold in fact, they are actually buying gold... there is just too much demand. Ever heard, who holds the most gold makes the rules? Actually US own a lot of reserves accross many different commodity classes, just a lot of people dont realise it.
Anyway what can u expect to happen. IF the debt limit is increased, the markets (stock markets and commodities) globally should rally. I would expect that initially the US dollar would gain strength as confidence is returned to the currency however long term its currency will decrease due to increase federal stimulas packages weakening the dollar. Initially when any previous QE package is broadcasted to the market, the US dollar increases for a couple of months before decreasing to worse than previous lows.
Hope this helps. Buy when blood is on the street is the way the rule go's.
