United States Could Lose AAA Rating

Elizabeth Kraus

The most dangerous of that is Oil, its rising and will rise much further, which means, that Gas prices and Food will be even more expensive. But, the Chinese are the cleverest these days – they are not buying movie studios like Japanese in 80’s yet, but Copper, Gold and Lithium for Electric Cars. Comex gold futures at midday Tuesday hit the major psychological level of $1,500.00 an ounce, after flirting with that key price for much of the morning. Tuesday’s new all-time record high in June gold futures now stands at $1,500.50 an ounce. Meantime, silver futures notched a fresh 31-year high near $44.00 an ounce Tuesday. A weaker U.S. dollar index and firmer crude oil prices helped to support the higher precious metals prices Tuesday. June Comex gold last traded up $4.30 an ounce at $1,497.20. Spot gold last traded up $1.00 at $1,497.50.The fact that gold hit the much-anticipated $1,500.00 mark will now garner even more general media attention, which in turn will likely draw even more general investor demand to the precious yellow metal. With the $1,500.00 mark now being hit for gold futures, traders and investors are eyeing the next major upside technical price objective, which is $1,600.00 an ounce. Regal Assets president Ron Fricke commented on Monday that he is expecting gold to reach $1650.00 and silver to reach $90.00 by the end of 2011. “There is no avoiding inflation it is a simple guaranteed equation when the FED is printing money inflation has to follow” he said. The still-weak overall technical posture of the U.S. dollar index remains a bullish factor for the precious metals markets. If the dollar index can produce a sustained uptrend it would be a clue that gold has put in a near-term market top. But, such seems well off in the distance at present. Crude is still trading around $107.00 a barrel, which is also an underlying bullish factor for the precious metals due to the inflationary implications. Indeed, there are widespread notions inflationary price pressures will continue to build in the world’s major economies. Many raw commodity prices are near record or multi-year highs. Meantime, central bankers of the major world economies the past two years have been flooding the financial system with printed money.

As the precious metals market bulls continue to benefit from safe-haven demand coming from several fronts, the latest development came from a surprise move on Monday by the Standard & Poors ratings agency to downgrade the outlook for U.S. government debt to negative. Also, the European Union’s smaller countries’ have their own sovereign debt crisis that is back on the front burner. Greece and Ireland are making the headlines this week, amid credit ratings downgrades and EU efforts to control the situation. And while the tensions in the Middle East and northern Africa may have eased a bit, the problems in that oil-rich region will not go away any time soon. As oil prices skyrocket, the entire global economy is predicated on the ability to use massive amounts of inexpensive oil to cheaply produce food and other goods and transport them over vast distances. Without cheap oil the whole game changes. Topsoil is being depleted at a staggering rate and key aquifers all over the world are being drained at an alarming pace.

Global food prices are already at an all-time high and they are moving up very aggressively. According to the World Bank, we at present have “44 million people around the globe who have been pushed into extreme poverty since last June because of rising food prices. At our home front, most of us Americans are so accustomed to supermarkets that are absolutely packed to the gills with massive amounts of really inexpensive food, that we cannot ever imagine life could be any other way. Inflation is at hand, boosting precious metals prices in recent month’s part by heightened inflation concerns among investors that believe it will likely continue to be the case for the foreseeable future.

Legendary bond investor Jeff Gundlach gave a presentation last summer saying U.S. is in trouble and debt default was inevitable. Nine months later, S&P is leaning toward the same conclusion. When Standard & Poor’s Rating Services Inc. Monday downgraded its outlook on U.S. debt to “negative,” it sent the U.S. government a simple message: Deal with your deficits! The rating agency expressed concern that continued dithering in Washington over how to address the $14 trillion-plus debt and ever-growing annual budget deficits would “render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns” – a hint the United States could lose its AAA rating. More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures.

While the US Treasury securities went from “stable” to “negative”, it was the first time since the attack on Pearl Harbor in 1941 that the US has received a “negative” rating. If the S&P “outlook” leads to an actual “downgrade,” US borrowing costs will increase. Gundlach identified three ways out of this debt crisis: Cut, print or default–cutting alone rarely works–printing is limited when foreigners own your debt—and as for the last option, he says “some type of polite default, at a minimum, will happen.”

Dr. Marc Faber speaking with CNBC the other morning about currency markets, notably the recent movements in the euro, and the global long-term position in the dollar, and the rise of gold and silver, he said, he expects the U.S. government to raise the debt ceiling. He doesn’t see Republicans and Democrats building a budget plan in which taxes are raised and spending cut, the real recipe for deficit reduction, and has encouraged individuals, is to be their own central bank and buy gold. He warns, “We’re in a contest for the ugliest currency; I don’t think people are heavily positioned in Euros. Most people still have 70-80% of their money in USD. Huge overhang of U.S. dollars globally. If people could sell their dollars and move into something they would believe in, they would. Gold and silver are the best currencies, “because the U.S. dollar will be in the future precisely its intrinsic value, namely zero.”

Source: http://goldcoinblogger.com/united-states-could-lose-aaa-rating/#more-2959