Why US Debt Growth Is Positive for Long-Term Gold Prospects



US debt and gold

The main concern regarding rising debt is that if it rises beyond a certain point, the country will have to raise taxes and cut spending in productive areas in order to service its interest costs. Such developments would be negative for economic growth. 

If economic prospects aren’t bright, people don’t have many options to fall back on. Gold is one of those options.

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US debt and Trump

Many market participants are expecting debt to rise substantially under President-elect Donald Trump’s administration. Trump is determined to cut taxes and increase fiscal spending. He plans for infrastructure spending of more than $1 trillion in the coming few years.

If implemented, Trump’s policies could lead to the United States’ debt escalating substantially. According to a study by the U.S. Government Accountability Office, the imbalance between spending and earnings would put “the federal government on an unsustainable long-term fiscal path.”

A rise in US debt would be negative for the US dollar’s long-term profile. The US dollar affects gold prices, which affect gold companies such as Goldcorp (GG), Barrick Gold (ABX), Yamana Gold (AUY), and Newmont Mining (NEM) and gold-backed ETFs such as the SPDR Gold Trust ETF (GLD). Gold prices also affect ETFs investing in gold stocks such as the VanEck Vectors Gold Miners ETF (GDX).


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