What Would Happen To Silver & Gold Prices If The US Government Defaulted?

I did pretty well in the 2008 meltdown, and I think a particular learning is useful here. People tend to think of the "price" of gold, or the "price" of stocks. They overlook that at an institutional and international level, the USD is really just a commodity like any other. This was quite evident during the bust, when both stocks and bonds fell simultaneously, which is rare and certainly not sustained or experienced at that magnitude. The reason was that banks and people needed to deleverage fast, and all their debts were priced in the USD commodity. This spiked demand for the USD as a unique instrument. Because stocks, bonds, and yields are reported in USD, that really distorted the picture of the crash to most people. The value of stocks and bonds did fall due to rising risk, but in parallel the value of the USD temporarily skyrocketed because cash was so desperately needed, creating a bizarre value imbalance. If you had, for example, priced the SP500 in kg gold, Swiss francs, tons of corn, barrels of oil (and vice versa) then that would make the phenomenon more visible.

If the US defaulted (which is unlikely for a number of reasons), the immediate effect would be seen in the Forex and bond markets. Our debt instruments would be toxic waste, and people would want to get out of them and into the Euro, yuan, or anything else with stability. There might be some emotional buying of precious metals by individuals. At an institutional level, that would be a terrible choice. PMs are much less liquid, and the U.S. government has already taken large gold holdings only a century ago. Big banks don't want to get forced into mark-to-market situations in wildly gyrating markets with illiquid assets (just ask SVB!).

My theory is that the price of PMs would skitter all over the place in shallow trading. It might look a lot more like the Mexican debt renegotiations from many years ago, or various South American countries with debt problems. I don't know how PMs performed when priced in those local currencies. That might be interesting to know!

Much ado about nothing .

Gold has been valued for thousands of years. The major world banks have been buying gold at record or near record levels the last couple years. Maybe they don't trust fiat currency as much as they used to. World debt is at record levels, not just in USA. Silver/gold YouTube channels have videos about the big banks stocking up on gold.

IMO there will likely not be a default, the fed will print more money and inflation will continue to erode dollar purchasing power.

IMO it's good to have some physical gold and silver as part of your net worth. I view it as some safety against inflation and a weakening dollar. How much to have is up to the individual, to each their own. Nobody knows future gold/silver spot prices, chances are they will roller coaster up/down down/up as usual with long term up levels.

IMO we are overdue for a significant stock market crash. This is not advise to anyone but I moved a portion of my stock mutual funds into money market funds for some protection. Back in 2007 my stepfather thought the stock market was too high, he moved most of his stocks into bonds/money market a few months before the 2008 crash. After the crash he went back into stocks. He's the only person I've ever personally known who timed the market correctly and came out ahead! He passed away two years ago from Covid, had moved into a nursing home and gotten out of stocks to preserve his holdings.

Thank you for the responses so far. I will also share my personal view on this, at least on the debt ceiling situation, without getting political.

To me, the risk this time around is higher than previous flirtations with sovereign default. The reason why I say this is because the political environment has been much more polarized in recent years, with hardliners on both sides not willing to budge, especially in a divided government, with the Republicans controlling the House, and the Democrats controlling the Senate and the White House.

I think it's fair to say that most sensible people in the US (and many people outside the US) would consider a US government default to be a catastrophic event that if can be avoided, should be avoided. However, I think it's a bit complacent to think that it will definitely be avoided, especially when having to place that trust in career politicians.

The June 1 "X date" is approaching very quickly. They had wanted to iron out a rough deal this weekend, so that it can be put to a quick vote, which would help them beat the June 1 deadline. But the weekend has come and gone, and there's still not a deal - they're not even close to a deal. This is worrisome to say the least.

Further, I believe the Treasury current account is down to $57 billion now. If and when it reaches $30 billion, they will no longer be able to pay for all the obligations and will need to at least default on some payments. At this point, I think the hope is that the Treasury can work some magic to somehow extend that June 1 date, because the likelihood of making that date now is low, purely from a timing and procedural standpoint.

In my view, this is really coming down to the wire, with the outcome still uncertain. Personally, I don't think we can 100% count on there not being a government default this time, but will still hope and pray that there won't be one.

Cheers!

This appears to be where the Treasury daily cash closing balance is reported.

https://fsapps.fiscal.treasury.gov/dts/issues

It looks to me like the balance is dropping by ca $10-15 billion a day. At this rate they'll hit $30 billion in a week or less. On 5/11 it was $143 billion, on 5/18 it was $57 billion. The brakes are about to be applied.

One account I read said that bills are settled on a daily basis. If $30 billion is the bottom trigger, revenue would have to raise that to about $45 billion to pay a day's worth of bills, and revenue fluctuates wildly from day to day. No bills would be paid on a day when funds are insufficient.

There does not appear to be ANY mechanism to prioritize one bill over another.

I hope the stock market crashes. Back in 2007, after listening to Cramer on TV, I moved my IRA and 401k out of mutual funds and into money markets, then the crash and I jumped back into growth mutual funds and Ford stock when it hit $1.01, and road the dow up until I got nervous and moved every thing back into money markets and then the pandemic hit and I jumped back in when the dow hit 18k and have road it up to 35k and am now back into money markets, so I am ready for the market to crash. Since I just started stacking last year I have not seen what PM does during a crash, so it should be educational

During the buildup to the 2006-2008 crash, a hedge fund podcaster/blogger commented that silver can be really hazardous to rookie traders. In crashes it can track gold because it psychologically becomes the poor man's gold. But when conditions improve or the economy booms, silver can suddenly split from gold and resume tracking base metals because its industrial value suddenly takes precedence. Apparently it is quite easy to get burned by the unpredictability, particularly trading options.