What a debt ceiling deal could mean for gold

After weeks of mounting uncertainty, lawmakers have forged a path toward avoiding a U.S. debt default. While no bill has yet been signed into law, the deal has passed in the House and moved to the Senate as of June 1 — with just four days left until the Treasury’s estimated default date.

Amid the long negotiations, many investors looking for a safe haven against potential market volatility turned to gold ahead of the default date. But as the likelihood of passing the debt ceiling deal and avoiding a crisis grows, what does that mean for gold investors?

Below, we’ll break down how a debt ceiling deal could affect gold, and why now may still be a good time to invest.

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What a debt ceiling deal means for gold

If the U.S. does default on its debt by not passing the deal in time, officials say the fallout could be a financial “catastrophe” and cause “severe damage” to the U.S. economy. 

“Back in 2008, gold proved to be a safe haven and appreciated during the worst months of the financial crisis,” Andrew Mastro, CFP, president and founder of Wrought Advisors, previously told CBS News. “If a U.S. default comes to pass, it’s possible that gold may appreciate in price again as more investors seek out assets perceived as safe.”

Because of the potential consequences to traditional markets, some investors turned to gold ahead of the expected default, which may have contributed to its price increase. But despite recent price cooling, avoiding a default doesn’t necessarily mean gold prices will suffer. 

There are plenty of other factors influencing gold, and a number of analysts this year have taken positive stances on the precious metal for a number of factors outside the debt crisis. The potential for a recession, the fluctuating value of the dollar and the next Fed rate move all have some experts predicting gold’s price will continue to rise in the months ahead.

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Why now is still a good time to invest in gold

While avoiding a debt default may dampen some demand for gold, that doesn’t mean that investors aren’t still looking for security today. Even if gold’s price moves temporarily down, it’s still a good time to consider adding it to your portfolio. 

Beyond short-term price changes, you may benefit from having a portion of your investments dedicated to gold in any economy. 

That’s because gold is a good way to diversify. It often moves independently of traditional stocks and bonds, which can help you preserve some value when those markets are more volatile. But make sure you consider the right allocations. Experts recommend keeping gold investments to 5% to 10% or less, so you can still benefit from investing in the stock market and growing your wealth over the long run.

Gold also tends to be a good hedge against inflation, since its value can rise when the value of the U.S. dollar is down. While we are on the path toward lower inflation, there’s still a ways to go before meeting the Fed’s 2% inflation target. Gold may be a way to preserve your purchasing power in inflationary environments today and in the future.

Learn more about all the benefits of a gold investment today with a free investment guide.

The bottom line

Short-term fluctuations are to be expected in any market — even one like gold, known for its relative stability. If the debt ceiling deal passes, it may cool demand from some investors, but the hallmarks of gold’s appeal as a safe haven still remain. 

What’s more, gold’s value is still up since the year began, despite recent price movements. If you’re looking for long-term stability and want to use gold as a way to diversify your portfolio, there are a number of factors pointing to positive moves in gold’s price over the next several months. 

Depending on your individual goals, it may still be a good time to consider a gold investment. Explore how you can get started with a free information kit today.