The debt ceiling is an issue that refuses to go away. Budgets remain at unprecedented levels and therefore the nation’s debt continues to climb precipitously. As a result, U.S. government spending once again reached the debt ceiling.
Despite how poorly the U.S. political establishment (i.e. Congress and the President) has handled matters, regardless of whether they bungle the operation, handle it smoothly, or manage something in between, we remain certain that deficit spending will continue at its historic pace. Therefore, the debt will grow, and the debt ceiling will continue its inexorable rise.
And what happens when you continually raise the debt ceiling? Well, gold tends to rise. Note the correlation between the rising debt ceiling over the last 23 years and the gold price depicted in the chart below.
The flash manufacturing PMI by HSBC suggested China's economy continued to improve. The reading rose to a 6-month high of 51.2 in September from 50.1 a month ago.
While the Fed failed to announce QE tapering in the September meeting, St Louis Fed President James Bullard said the Fed's decision last week was "a borderline decision" and October would be a "live meeting" because "it's possible you could get some data that change the complexion of the outlook and could make the committee be comfortable with a small taper in October".
The debt ceiling will be raised, U.S. debt will continue to climb and it will be funded by QE. As a result, gold demand will remain strong as people, institutions, and governments look to protect themselves from the aggressive devaluation of the world’s reserve currency (the US dollar).