What does the debt ceiling agreement signify for the price of precious metals?

The Senate enacted legislation on Thursday to postpone the US debt ceiling until January 1, 2025, putting an end to the drama that threatened a Global Financial Crisis after weeks of political deadlock, tense talks, and rising economic fear.

 The new Debt Ceiling Deal ultimately allows the U.S. government free reign to accrue a limitless amount of debt until 2025, which would normally be a reason for celebration. However, in 2023, this kind of news would be cause for fear.

You only need to look at gold prices to find out what the markets think about this new Debt Ceiling Deal.

 The price of the precious metal has skyrocketed this week as demand for safe-haven commodities increased due to concerns about an impending “bigger debt crisis.”

 The U.S. Treasury Department will receive the “green light” to issue further bonds after President Biden signs the revised Debt Ceiling bill into law in order to restore the funds it depleted during the period of exceptional measures when it was unable to borrow more money.

Economists claim that scenario’s effects alone would drain liquidity from the world’s equity markets at a risky moment when the economy is vulnerable and recession chances are high.

 That by itself creates strong bullish headwinds for the price of precious metals.

 But this is when things start to get really interesting.

 The U.S. Federal Debt has taken more than 200 years to reach the $2 trillion threshold. However, according to official data from the Congressional Budget Office, it currently takes an average of 18 months for every $2 trillion of extra deficit to be added to the U.S. national debt.

The federal government currently pays $1.3 billion in interest each day, locked into the record-low borrowing rates that became available after the pandemic in 2020.

 Out of the $32 trillion in U.S. Federal debt, $16 trillion, or half, expires in the next three years. However, in the upcoming five months, 30% of the debt is due.

 This debt will eventually need to be refinanced at the much higher interest rates of today, which several top Fed officials believe could increase even further during the next two policy sessions.

In other words, the U.S. government will be required to pay roughly five times as much in interest, paving the way for “the mother of all financial crises.”

 The danger that the world economy may falter under pressure and become more susceptible to black swan events increases when interest rates rise, as was recently demonstrated by the second, third, and fourth greatest bank failures in history, which all took place in the past two months.

 The majority of analysts believe that the Fed raised interest rates one time too quickly. The biggest concern right now is that the Fed might go overboard, especially with the likelihood of another rate hike this month increasing.

When you take into account the whole scope of the present developments, it’s not difficult to understand why the macroeconomic environment is fostering a “perfect storm” for precious metals.