Investing.com – Gold prices rose by more than 1% during these moments of trading, Thursday, after the release of US unemployment claims data, which showed an increase in claims for aid, prompting the Federal Reserve to end its tight monetary policy.
Meanwhile, the US economy is on the verge of a major debt spiral, which will push gold prices significantly higher in the next few quarters, according to one market strategist.
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“The Fed continues to say interest rates need to be higher for longer, but as a result, we’re starting to see problems in the market,” Felder said. Adding, “We will see more signs of financial instability with more volatility in Treasuries.”
Because of its high debt and high interest rates, the US government paid $879.3 billion in interest during the fiscal year ending September 30. Service costs are expected to rise to $1 trillion in the new fiscal year. US debt costs have exceeded the country’s annual defense budget.
Growing concerns about US debt are already affecting US Treasury markets. Last week, the US government sold $24 billion worth of 30-year bonds in a disappointing auction. Analysts noted that during the auction, primary dealers, who buy the bid that investors did not take, had to accept 24.7% of the debt on offer, more than double last year’s average of 12%.
In this environment, there is a very real risk that the bond market will become uncorrelated with economic conditions, Felder added. This could also push stock markets back into bear market territory and risk pushing the economy into recession, forcing the Federal Reserve to put a cap on bond yields, he said.
He continued: “With increasing volatility in the Treasury market, the Federal Reserve will have to intervene, and they will introduce a new program to help stabilize the markets.”
In this scenario, “the markets will see this and see it as a new round of quantitative easing, and then the price of gold will explode,” according to Felder.
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Debt spiral
Felder added that conditions will be ripe for gold when the US unemployment rate starts to rise and as recession fears start to grow, bond yields move higher instead of lower.
He noted that it is inevitable that yields will continue to rise because the US government is not in a position to provide any financial support when the economy eventually falls into recession.
“The size of the U.S. debt and the high deficits will make this recession different. Anything the government does will only widen the liquidity gap in Treasury markets.” “This is how the debt spiral begins,” he said.
“Over the next few quarters, investors will realize that this financial problem will not go away, which will ultimately support gold prices,” Felder stressed.
As for how far gold can rise in a new debt spiral-spurred rally, Felder said he is looking to reach $2,700 an ounce.
“A three-year sideways correction in the price of gold is a very classic bull flag pattern,” he said. “When looking at the flagpole that preceded it, which was the rally in 2018 and 2019, a simple projection from classic technical analysis highlights a higher target of about $700 off the current price.
Gold and dollar now
It is now rising 1.02% to $1,984 an ounce.
While it rose by 1.14% to $1,981 per ounce.
On the other hand, it declines by 0.3% to 103.96 points.
2023-11-16 15:09:00
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