Compromise or Default Both Bullish For Gold and Bearish for the U.S. Dollar

Dear Subscriber,

Despite the rebellion that's being reported in the news today among conservatives in the House of Representatives. I expect we will have a debt ceiling compromise by the end of the week, likely by Thursday. It's abundantly clear that the compromise will put off the hard decisions, any serious effort to cut spending and or increasing revenues until 2013 after the 2012 elections.

If I am wrong and we do see the U.S. Government defaults on its debt – we could see a financial panic much worse than saw in 2008. The truth is no one knows how bad it could get or how fast. It is completely uncharted waters. If you don't own gold now, you must add some to your portfolio regardless.

If we see a financial panic we could see gold over $2,000 in a few days after the default. The monetary crisis I have been warning about for the past several years could also become a reality. In the default scenario we must consider the possibility of it igniting a world wide financial panic. If that happens there's no telling how high gold could soar. It could take a decade for the world economy to recover.

If in the other hand we see a compromise I expect the most likely agreement will be close to the proposal made by Senate Majority Leader Harry Reid (D-NV) yesterday. The crux of this plan is to cut $2.7 billion in spending over 10 years, raise the debt ceiling by the same amount and push any review of the debt ceiling into 2013.

While I expect the Republican's to fight tooth and nail to structure the agreement so another battle of the debt ceiling show down in the middle of the 2012 election campaign, I think in the end both political parties will wind up pushing the battle till after the upcoming election.

Unfortunately this compromise will likely cause the debt of the U.S to be reduced from AAA to AA. This will be the world's financial markets telling us to put our financial house in order. It will weaken the dollar further – and drive the price of gold, silver, and oil higher. This assumes of course that there are no “black swan” events like a banking collapse throughout Europe or an escalation in the war on terrorism. In which case the “risk trade” would drive precious metals even higher. So deal or no deal gold will be a winner, in my opinion.

By putting off real efforts to reduce debt and increase revenues I expect to see my prediction of $1750 gold occur by years end. Certainly during the first half of 2012.

The results of the 2012 election are impossible to predict this far out. We may not even have an indication of a likely direction till days before the next election. If Democrats regain control of Congress and hold the Senate we will see taxes go up and spending trimmed. There will be changes in Medicare, Medicaid, social security and yes higher taxes for the wealthiest 1%. If Republicans win, then spending will be cut to the bone and some revisions to the tax code will take place.

One thing I can predict a brutal political campaign as the rhetoric and in fighting moves to unprecedented levels.

I remain hopeful that the outcome of this debate is a move to more of a consensus government where the majority of Republicans realize that the Tea Party is just destructive and the majority of Democrats recognize that the Pelossi led extremists are as bad as the Tea Party.

The one theme that I liked from the President's speech was that this country needs compromise. Hopefully, it starts now, but I'm not counting on more compromise until the votes are counted until Novembers' election.

While its true that I cannot predict the results of the upcoming election this far out, I am concerned about the Republican field of Presidential candidates. In my opinion the most electable Republican in the country is Former Florida Governor Jeb Bush. He has the brains, ability to both campaign effectively and raise the enormous amount of money needed. He also has the ability to energize conservatives and capture independent votes.

Regardless who gets elected in 2012, bottom line watch for my recommendations. My team and will do my best to arm you with winning recommendations.

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Best Wishes,

James DiGeorgia, Publisher and Editor