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How the National Debt Impacts the Gold Price

Gold Price and the National Debt

Gold has such a close correlation to the value of the US dollar. Whenever the value of the dollar decreases, the value of gold increases, which makes gold investors watch many factors closely. One of those factors is the US National Debt. The national debt influences the price of gold in many ways. Keep reading to learn more about the national debt and how the gold price can change with it, plus using gold as your insurance.

What is the National Debt?

National debt denotes the outstanding obligations of a country, according to Investopedia. Such obligations may also be called government debt, federal debt, or public debt.

The national debt of the United States is what the federal government owes creditors—including debt held by the public and federal government trust funds. U.S. national debt totaled $30.5 trillion as of July 15, 2022.

Key takeaways regarding the national debt include:

  • The national debt of a country is the total it owes creditors.
  • Economists tend to focus on the ratio of debt to gross domestic product (GDP) as an indicator of its sustainability.
  • Countries borrowing in a currency they control can choose to issue additional currency to repay debt.
  • Rising interest costs and Social Security deficits are likely to exacerbate rapidly growing U.S. budget shortfalls in the coming years.

How the National Debt Grew

According to the US Treasury, the U.S. has carried debt since its inception. Debts incurred during the American Revolutionary War amounted to over $75 million by January 1, 1791. Over the next 45 years, the debt grew until 1835, when it notably shrank due to the sale of federally-owned lands and cuts to the federal budget. Shortly thereafter, an economic depression caused the debt to grow again into the millions. The debt grew over 4,000% through the course of the American Civil War, increasing from $65 million in 1860 to $1 billion in 1863 and around $2.7 billion shortly after the conclusion of the war in 1865. The debt grew steadily into the 20th century and was roughly $22 billion after the country financed its involvement in World War I.

Notable recent events triggering large spikes in the debt include the Afghanistan and Iraq Wars, the 2008 Great Recession, and the COVID-19 pandemic. From FY 2019 to FY 2021, spending increased by about 50%, largely due to the COVID-19 pandemic. Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.

Rise of Inflation

When currency becomes devalued, like when the national debt mounts more and more, inflation occurs. According to Investopedia, inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. The rise in prices, which is often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.

Gold can be used as a hedge against inflation. Since wages have failed to keep up with rising inflation rates, this compounds on everyone’s wallet, making gold more and more valuable.

Using Gold as Your Insurance

As the US debt mounts and mounts, domino effects occur, including rising interest rates and inflation. As such, gold becomes more and more valuable. As the value of every dollar in your savings account decreases, the value of your gold goes up. This makes gold a great insurance policy during tough economic times.

Gold is also highly liquid—depending on how you invest in it—which means you can sell it quickly when you need the cash. Investing in real estate, by contrast, can take a long time to get your money. You need a lot of experts, paperwork, and time for your investment to sell. Luckily with gold, you can get your cash as soon as you need it.

Gold has never been valued at zero. Whether you are a seasoned investor or new to the game, it is essential to have gold in your portfolio to protect every single dollar you have. You never know what might happen next!

Investing in Gold with Priority Gold

If you are ready to invest in gold to protect your savings and secure your future, we can help. Priority Gold is one of the most trusted precious metals dealers in the United States with a BBB A+ Rating, AAA Rating with Business Consumer Alliance, and 5 Stars Rating with TrustLink.

We specialize in providing precious metals investment services with Security, Liability, and Great Convenience for customers. Our team is committed to helping to streamline their precious metals purchases at a fair price, selecting the right precious metals portfolios, and meeting their important financial objectives.

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