Less than six months ago, the American government was begging for an increase to the debt limit. At the eleventh hour, the US debt ceiling jumped from $14 trillion to $16.394 trillion. At the time, the administration promised the increase in spending would see the pollies through until 2013.
However, a few people (see below) have been crunching the numbers. And it turns out, the increased debt ceiling won’t last as long as they’d planned. Or hoped. Or said it would.
The outgoing Treasury Secretary, Tim Geithner, acknowledged this. But he doesn’t think anyone should worry, as the limit won’t happen until ‘late in the year’.
But Senator Rob Portman of Ohio isn’t so sure.
He told the Examiner in Washington,
‘Following the contentious debt ceiling last August, President Obama promised that he would take action to address the country’s fiscal crisis. He failed to do that. In fact, his new budget increases spending and projects that Washington will be hitting the debt ceiling again in mid-October – burning through a $2.1 trillion debt limit increase in just over 14 months.’
By his numbers, the debt will be $16.334 trillion as of September 2012, $60 billion below the limit. And in 15 more days, the government will reach the limit of $16.394 trillion dollars.
However zerohedge.com reckons the government will burn through the cash much sooner.
‘…at the current rate of debt issuance, which incidentally is going to accelerate sharply due to the recent extension of the payroll tax cuts which will require an incremental $100-150 billion total debt to be funded, and extrapolating future issuance solely on historical patterns, the US debt ceiling D-Day will be September 2012.’
That’s three very different time frames. But they all have something in common. Before the election the US will increase the debt limit.
Following a Pattern
Which, for you, gives you some time to buy gold.
Now why would you want to buy gold right now, considering the price is going lower, not higher?
Simply because when the debt limit rises, so does the price of gold.
Every time the US the raises the debt ceiling, the price of gold follows.
And this chart doesn’t show the gold price AFTER the limit was increased to more than $16 trillion.
Within days of the higher limit, spot gold reached a new high of USD$1,889.70. Even though the price retreated slightly after that high, the price still managed a 12% gain for the month of August.
Three different sources have confirmed that the US government will need to increase the debt ceiling limit in six months.
If you were waiting for the ‘right time’ to buy gold, it’s here. Take advantage of the lower price while you can.
As the debt limit draws closer, the price of gold should rise.
Editor, Money Morning
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