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By all appearances the gold and silver markets aren’t wasting any time reacting to The Deal, leaving me with egg on my face for predicting that the usual euphoric rush would briefly drive down prices.

August 04, 2011 – By all appearances the gold and silver markets aren’t wasting any time reacting to The Deal, leaving me with egg on my face for predicting that the usual euphoric rush would briefly drive down prices.

So far gold and silver prices haven’t skipped a beat in a surprisingly strong upward surge. By all indications investors both here and abroad haven’t been fooled in the least. If anything, by committing to continued deficit spending while delaying proactive steps to address the real issues until after the 2012 elections, The Deal has underscored our government’s incompetency and complete lack of motivation to make hard decisions.

The deficit reductions outlined in The Deal are a mere pittance compared to the burgeoning deficit and unfunded liabilities. Nothing has been gained when it comes to getting Americans back to work, and until that happens we will continue to fall behind in our debt. Eventually the government is bound to try QE3 simply for lack of other options.

Further devaluation of the already emaciated greenback may provide us some temporary relief, but the effect will be a technical default on all of our debt. Don’t expect the world to rejoice over that. But the major foreign holders of US debt are caught between the proverbial rock and hard place.

They can’t unload all of their IOUs too fast or they would lose everything. But holding onto to them is far too risky to warrant the meager interest rates they are getting now. They will demand a credit downgrade to force up the interest on their notes and if that doesn’t happen they will be forced into accelerating their divestment of US debt. When you weigh the tradeoffs it becomes clear that we are very near the tipping point.

Regardless of how we get there and how long it will take, there is but one probable outcome. US debt will become so toxic that nobody will want it, even with double digit interest. Until such time as the world settles on a new reserve currency, precious metals will offer the only sound store of liquidity for the world’s reserves – and the only store of wealth for investors.

It looks like we won’t have the luxury of significant price dips this time around. Both gold and silver have all the markings of a market gathering steam for an imminent breakaway.

Shannon King

Senior Staff Writer – GoldSilver.org

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