Would the price of gold collapse if we had a default on our national debt
HalfDime
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A U.S. national debt default would almost certainly not cause the price of gold to collapse. In fact, historical precedent and expert analysis indicate the opposite: gold prices would likely surge in the event of a default.
Gold as a Safe Haven in Crisis
Gold is widely regarded as a "safe haven" asset. During periods of severe economic uncertainty, such as a potential U.S. debt default, investors and central banks typically flock to gold to protect their wealth.
In the 2011 debt ceiling crisis, when the U.S. came close to default and suffered a credit rating downgrade, gold prices spiked by $400 an ounce, reaching a then-record high.
Analysts consistently note that debt ceiling crises and the risk of default are "super gold positive," as fear and uncertainty drive demand for gold higher.
Why Would Gold Prices Rise?
A default would likely trigger a sharp decline in confidence in the U.S. dollar and Treasury securities, leading investors to seek alternatives like gold.
Central banks have been increasing their gold reserves in anticipation of greater global financial instability, further supporting gold prices.
Historically, gold prices have moved inversely to the value of the dollar and have risen alongside increases in U.S. national debt.
What Happens in a Default Scenario?
A U.S. default would likely cause:
A severe recession and financial market turmoil.
A loss of confidence in the dollar, potentially undermining its status as the world’s reserve currency.
A flight to safety, with gold being a primary beneficiary.
While gold prices can be volatile and may fall after a crisis is resolved, the immediate reaction to a default would almost certainly be a sharp increase in gold prices, not a collapse.
Scenario Likely Gold Price Reaction
U.S. debt default Surge (sharp increase)
Debt ceiling crisis Increase
Crisis averted/resolved Possible short-term drop, but higher long-term trend
Conclusion:
A U.S. national debt default would almost certainly drive gold prices higher, not lower, as investors seek safety amid economic chaos and a loss of confidence in the dollar.
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Comments
Default will never occur, dollars will simply buy less. This is why:
The real question is "will wages keep up with inflation?" Historically they do but only after the fact.
No Way Out: Stimulus and Money Printing Are the Only Path Left
first, price controls, then minimum wage increase, then hyperinflation, then gold is used in trade
nope, when it gets that bad this good will be traded for that good. "give ya a can of peas for a bottle of aspirin."
No Way Out: Stimulus and Money Printing Are the Only Path Left
Then nothing will be "good". So it won't that bad.
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barter not used so much in venezuela
I don't really know, and I don't think you know either, but I think that's probably not accurate. More likely, Central banks are accumulating gold because they trust it more than the foreign currencies - mostly US dollars - that they've been selling. Which is not the same thing as a hedge against global financial instability. The distinction probably doesn't matter to a serious gold bug, but it does matter if you're taking a broader look at all kinds of markets.
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As I see it, the only practical alternative to a runaway national debt is to begin issuing money unbacked by government debt, as in U.S. Notes.
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It has been done before. That alternative reduces debt and government interest payments but directly increases monetary inflation. Is it practical? Or is it a devious strategy that could be implemented to confuse the majority of the public.
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But wouldn't a newly printed $100 U.S. Note have the same inflationary effect as a newly printed $100 Federal Reserve Note?
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If things get that far out of hand-which is looking more and more likely-both likely will be enough to purchase a Snikers bar!
The U.S. government can technically default on its debt if Congress fails to raise or suspend the debt ceiling, with analysts projecting a risk window between mid-July and early October 2025 under current trajectories. While the U.S. has never defaulted historically, recent analyses highlight two critical dimensions of this risk.
Short-Term Debt Ceiling Crises
The Bipartisan Policy Center warns that without Congressional action, the Treasury could exhaust its cash reserves as early as July 2025, triggering delayed payments on obligations like Social Security, military salaries, or bond interest. Such a "technical default" from payment delays could destabilize markets, spike borrowing costs, and risk a credit rating downgrade.
Long-Term Debt Sustainability
Wharton School modeling suggests the U.S. faces a ~20-year window to address structural fiscal imbalances before debt reaches levels where default—either explicit (missed payments) or implicit (high inflation eroding debt value)—becomes unavoidable.
in 10 years what will the largest denomination note be?
If you're over 50-years-old you will not see a default. There's a new Doomsday Clock and it's got well over a quarter of a century on it.
Perhaps technically, but by issuing notes, without debt, it might be perceived differently by the public. Paying interest, vs not paying interest creates a different mindset. Free money feels better than debt money.
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The public didn't care when U.S. notes circulated freely alongside Federal Reserve notes, so I doubt that they would care now.
The continued use of debt-based money will require a continuous and substantial increase in the national debt, while debt-free money will permit us to begin retiring it.
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The continued use of debt-based money will require a continuous and substantial increase in the national debt, while debt-free money will permit us to begin retiring it.
What would that mean? Currently, debt is not being retired faster than it is being created - thus the need to create even more debt. If debt-free money were to be implemented, I suspect that Congress's spending habits wouldn't change much anyway, and inflation would still be the result.
In both cases I think that without changes to fractional reserve banking laws and laws that restrict rehypothecation of assets, the banksters and Wall Street would find ways to coerce Congress into making new one-sided laws & regulations that put banking and Wall Street first over wage earners and average citizens.
I knew it would happen.
When money is backed by the bonds used to create it, the money is debt.
No Way Out: Stimulus and Money Printing Are the Only Path Left
Debt is just digital digits on someone's computer screen. Simply wiped out with the strike of a keystroke.
I certainly wouldn't care. Whhatever green they decide to hand me is fine with me, it all spends the same. RGDS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
Wooooha! Did someone just say it's officially "TACO™" Tuesday????
try convincing holders of your debt to do that. LOL
No Way Out: Stimulus and Money Printing Are the Only Path Left
I hold no debt. RGDS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
Wooooha! Did someone just say it's officially "TACO™" Tuesday????
True, but at least the continuous increase in interest paid on the national debt would come to a halt. Right now the interest is over $1 trillion a year and growing uncontrollably, increasing the deficit and adding to the debt itself. It's a vicious circle that can be broken only by either defaulting on the debt or switching to debt-free money. I think debt-free money will lead to a much better outcome.
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gutter debt?
No Way Out: Stimulus and Money Printing Are the Only Path Left
Well I guess technically, I do have another 10ozt gutter RCM bar enroute. Paid for partially by CC rewards, the remaining $235.32 charged on the card but that will be wiped to $0 one week from today. $23.53 an ounce, yikes. The DCA is certainly rising. RGDS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
Wooooha! Did someone just say it's officially "TACO™" Tuesday????
The mother of all stimulus packages. Who wants to give that up?
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Nobody (except maybe you) likes this sort of fixed income when the rate of inflation is higher than the fixed income rate.
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The U.S. public owns only around 25% of the total national debt, either individually or in mutual funds or ETFs. The interest is not a "stimulus" to them, since they can get an interest rate that is comparable or better by investing in bank CDs or highly rated corporate bonds.
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I don't know what percentage of the gold run-up is due to weakening of the US dollar but it is substantial. If people have to raise money because the stock market is weakening, they lose work, or other economic squeezes then they'll have to sell some of their gold too and prices will fall.
Looks like Asia/Europe selling treasuries and putting the $$$$ to work in the Au. RGDS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
Wooooha! Did someone just say it's officially "TACO™" Tuesday????
The rate on CDs and savings accoubts is what it is because of the rate on treasuries. Lower treasuries yield and Cd rates drop also. Higher rates are a Stimulus and increased income to anyone who has savings. M2 money supply shows about $25 trillion in savings, Cds, money markets and other short term instruments. This amounts to potentially over $1 trillion in interest payments (stimulus) to the US public.
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.> @dcarr said:
Well, I've heard on this very forum that govt issued data is now accurate and transparent and the top dog has written "no inflation" and "prices are way down".
Besides, folk who have savings greater than their annual spending will see an increase in net worth if inflation and interest rates are the same.
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No it doesn't, and here's why. Total non-federal debt in the U.S. amounts to $63 trillion, or 250% of savings. Interest on this debt is also tied to treasury rates. If $1 trillion in interest payments to the U.S. public is a "stimulus", then it is overwhelmed by a $2.5 trillion "anti-stimulus" attributable to the treasury rate.
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There is going to be a lot more "first" than just what you listed.
There is no precedent for a predominantly credit based financial system to hyperinflate it's currency in the fiat money era, and in the gold standard and gold exchange standard era, the connection to gold did not accommodate it in the countries which used it.
Zimbabwe and Argentina aren't indicators of what will happen in the US or any other actually developed country.
US elites will have no problem throwing the public under the bus to save the currency, which is necessary for the imperial project, at least until the threat of guillotines becomes a real possibility which it won't be at the beginning of any crisis. In practical terms, this should mean that the USG will default or partially default on numerous aspects of the social contract. This is inevitable, whether it's in nominal or "real" money.
I'd also expect FX and capital controls, if not on everyone, on those without sufficient political influence. Maybe a split between foreigners and residents too.
Coin forums intermittently speculate about a potential future repeat of FDR's executive order. That could happen, but punitive taxation might be chosen instead along with a ban on gold exports.
I'd expect mandatory repatriation demanded of US citizens and US residents, along with mandatory buying of USG debt by pensions and retirement accounts. There is FACTA reporting for that.
There will definitely be tax increases, income and other, especially on the (supposedly) rich who have limited if any actual political influence.
South Africa used a dual currency system before the end of Apartheid, the commercial and financial Rand. US could try something similar too.
In this implied scenario, there should be substantial defaults in the private credit markets, the most since the 1930's. There is no basis to believe "printing to infinity" will be done to prevent any and every debt from default. The USG and FRB can't prevent living standards from declining, so while I'd expect another initial attempt at fiscal "stimulus" and QE, unless the country is too far gone, I'd expect it to be applied selectively after an initial effort. Where any selective efforts will be directed is unknown.
USG could also defacto default by unilaterally extending maturities at below market interest rates. I consider this a virtual certainty too.
You mean MMT?
Most debt in this country is FIXED and not variable. Changing Treasury rates have only a small "anti-stimulus" effect.
Very little to none. Nobody of size sells gold to raise cash. You have T-bills for that.
Not sure the OP has been answered...but NO.....gold would certainly hold up and likely skyrocket if a default -- which I can not fathom -- took place.
i can imagine technical default
perhaps the fed stops asking for interest payments, then when they're due no principal payments.
No, because MMT favors large-scale deficit spending to fund various government programs. Debt-free fiat money makes sense even in an economy that is attempting to reduce government spending.
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Most credit cards charge a variable rate. About 80% of business loans by value carry a variable rate. The only private credit sector with a predominantly fixed rate is home mortgages, and the proportion of adjustable rate mortgages is continuing to grow.
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We have seen in the past few months that the courts will intervene and dictate what the "government" can or can't do with decreases in spending. The courts have recently disallowed the terminate of federal employees for example, and thus the courts have taken over the role of legislators. If the trust in the fiat currency collapses, so then will its value.
You can't do any of these hypothetical, nonsensical solutions.
The Treasury market and the Dollar's Reserve Status would be crippled. It would lead to financial implosions throughout the globe, where tens of TRILLIONS of dollar-based loans exist.
Most corporate debt is fixed. Most investment-grade bank loans are fixed. Junky bank loans usually float, yes.
Credit cards irrelevant in big scheme of things.
and what does over $1T in interest payments to the public say about the interest collected (debt) from the public? the banks are not being generous with their own money, they are taking it from another portion of the public (at a higher interest rate), and profiting in the process. Round and Round goes the leveraged banking wheel.
No Way Out: Stimulus and Money Printing Are the Only Path Left
What was actually said on this very forum is that government released economic data will likely be MORE accurate and MORE transparent.
Inflation and interest rates being the same? LOL
No Way Out: Stimulus and Money Printing Are the Only Path Left
Gold is now in strong hands with tight fists. This is adding fuel to the frenzy.
No Way Out: Stimulus and Money Printing Are the Only Path Left
Not an accurate example as you're trying to lump everyone together.
Folk who have savings are earning a good passive income that in many cases exceeds their increased cost of living due to inflation.
I don't own your car loan so I don't care what you are paying in interest cost. I do own CDs and Treasuries and do care about the increased income my savings is earning.
I have zero interest of other folks self-inflicted credit cards debt. Stop buying Temu and Shein.
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Interest rates are 4.25%. Your govt says less than 3%, and the boss says zero. So yeah.
Knowledge is the enemy of fear
I do own CDs and Treasuries and do care about the increased income my savings is earning.
Your dollar-denominated holdings were -0.88% today.
I knew it would happen.
So are you. You said, "This amounts to potentially over $1 trillion in interest payments (stimulus) to the US public." I simply pointed out that the net effect on the US public (lumping everyone together) is an "anti-stimulus" of $1.5 trillion.
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