Standard & Poor’s sovereign rating of the U.S. will most probably go down a notch in the coming months. The U.K.’s outlook has already been downgraded because it has borrowed against 100% of its GDP. The U.S. borrowing is currently at about 70% of GDP, and increasing.
The market has already figured this out. U.S. equities have started to come down, and both the 10-year and 30-year treasury bonds have gone down in price (which means that interest rates for government borrowing have gone up). Geithner has commented on the issue and Bill Gross, manager of the world’s biggest bond fund, has said it is now a certainty.
Standard & Poor’s also reports that China is continuing to look for ways to park their large surpluses other than funding U.S. debt. This has in fact strained the U.S. – China relationship.
What this all means for gold is that it has already gone up in value, and the market has started to move in this direction in a big way. This past week, gold has broken through an important resistance at $945-950 and is now at $956. If this continues next week, it should break through the $1000 barrier by June. I expect gold to shoot up shortly thereafter.
It’s not too late to buy gold now, but by June there will be a stampede and it will be difficult to get hold of it without getting crushed.