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What is the Likely Effect of Gold and Silver Prices with the Recent Downgrade of the U.S.’s Debt?

As you may have heard, Standard and Poors, one of the big three U.S. credit rating agencies, has downgraded the U.S.’ debt from AAA to AA+.  They have also assigned a negative outlook, which means that the United States must do much more than agree on $2.3 trillion of budget cuts over the next ten years to get its financial house in order.  This comes as a bit of a surprise to some folks, as we recently averted a default on August 2nd when Congress voted to raise the U.S. debt ceiling.  Many people felt that we were out of the woods once the debt ceiling was raised, but as evidenced by S&P’s recent downgrade of our credit rating, this clearly isn’t the case.

As a coin dealer, many of our customers are interested in the expected impact on gold, silver and platinum prices, and more specifically, these type of coins, with the recent downgrade.  First and foremost, Standard and Poors is only one of the big three credit agencies.  While they may be the most influential and recognizable by many individuals, their downgrade is only one opinion as to the United States’ finances, and doesn’t necessarily mean that the other credit rating agencies will follow suit.  In fact, just recently, Moody’s, one of the other big three credit rating agencies, along with Fitch, recently affirmed the U.S.’s AAA credit rating.  Thus far, we haven’t heard from Fitch, but anticipate that we’ll receive an official response in the not too distant future.

If Fitch follows suit, or if the public and/or other nations believe that the United States has become a riskier borrower, we’re likely to see an increase in interest rates to compensate investors for the higher perceived risk.  This may also result in current holders of U.S. treasuries to sell their bonds and invest in a safer alternative.  Considering that recent U.S. economic reports have been less than glowing, coupled with Goldman Saks’ negative outlook of the economy, as evidenced by cutting their price target of the S&P 500 over the weekend, stocks likely aren’t a recipient of the inflow of money from Treasury sales.

A likely recipient of at least some of the proceeds from the sale of U.S. treasuries is precious metals, most notably gold, silver and platinum, as they are considered relatively stable; catering to individuals that are looking for a flight to quality and safety.  Also of note is that the gold market has been functioning less like a commodities market and more like money, with silver following suit, meaning that even if there’s a slowdown in the economy, and the price of commodities drop due to less global demand, there’s a high likelihood that gold and silver will continue to perform well.

What type of activity have we been seeing from a coin dealer’s perspective?  Many individuals appear to be taking advantage of the high price of gold, silver, and platinum to cash in their coins and coin collections that have appreciated substantially over the past couple of years.  Some of these individuals are profit taking, but others lost their jobs during the recession and unfortunately haven’t found gainful employment since that time, selling coins, as needed, to pay their bills.

On the other end of the spectrum, buying activity has also been higher than normal, as concerns over the European sovereign debt crisis, the current debt and deficit situation in the U.S., and the perceived slowdown of the economy has prompted individuals to buy gold, silver, platinum, and palladium coins as a hedge against a global economic collapse. While the concern of higher expected inflation rates in the U.S. is a contributing factor, as a result of the loose monetary policies of the Federal Reserve, this doesn’t appear to be the primary reason why individuals appear to be buying gold, silver, platinum, and palladium coins.

While we’re not economists, we try and stay informed from an economic perspective and how it may affect our coin business.  We can make a compelling case at this time for buying or selling coins, so if you’re interested in buying or selling coins, give us a call today at 404-236-9744 for the most competitive prices.  Our buy/sell spreads are among the tightest in the industry, making Atlanta Gold and Coin Buyers the best choice whether you’re buying or selling coins.  We look forward to hearing from you and earning your business!

Tony Davis
Tony Davis