Gold and Silver Decline, Despite New Debt Projections

Wall St. Cheat Sheet

On Monday, gold (NYSEARCA:GLD) futures for April delivery fell $5.90 to settle at $1,703.90 per ounce, while silver (NYSEARCA:SLV) futures declined 83 cents to close at $33.70.  Despite a declining U.S. dollar (NYSE:UUP) and new budget projections from the Congressional Budget Office, precious metals added to losses from the prior week.

America’s constantly increasing national debt is expected to cost more than $5 trillion in interest payments alone over the next decade, according to projections from the CBO.  Interest rates on U.S. bonds are near record lows, but the CBO estimates they could rise to 5 percent by the end of the decade.  However, if interest rates rise just one percentage point above the 5 percent estimate, it could add around $1 trillion to interest costs.

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The CBO also projects that over the course of the next decade, more than 14 percent of all revenue collected by the government will be spent on interest payments.  Many believe that once interest payments surpass 30 percent of tax revenues, a country has an avoidable out-of-control debt crisis.

In afternoon trading, the SPDR Gold Trust (NYSEARCA:GLD) edged .53 percent lower, while the iShares Silver Trust (NYSEARCA:SLV) fell nearly 3 percent.  Gold miners (NYSEARCA:GDX) such as Barrick Gold (NYSE:ABX) and Yamana Gold (NYSE:AUY) fell about 2 percent.  Silver plays such as First Majestic (NYSE:AG), Endeavour Silver (NYSE:EXK) and Silver Wheaton (NYSE:SLW) all dropped more than 4 percent.

In a note to clients, Commerzbank said “there is additional scope for correction” in precious metals, but the correction is likely to be temporary.  Gold and silver started the year strong and this correction is seen as a healthy consolidation period.  Year-to-date, silver is still the best performing asset, with platinum close behind.

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com