The recent debt ceiling debate in Washington helped create a volatile stock market. However, it seems the credit rating reduction slapped on the United States was the last straw. The stock market tumbled over 500 points in just one day. Of course, there are more than enough economic indicators under-performing that have helped create this massive selling of stocks. These same investors who are selling off their risky stocks are buying gold sending gold prices per ounce upward.
Indeed, not only did gold increase in price, it soared. The Federal Reserve did not help quell economic uncertainty when they stated interest rates would be kept low for the next couple of years. To put it differently, the economy is expected to remain down for two more years. At least this is how Wall Street interpreted their announcement. Interest rates will remain low in an effort to stimulate the economy. However this was an unusual statement by the central bank.
Most other recent economic indicators continue to report bad news about the economy. While this does not bode well for the stock market and 401K’s, it means gold prices per ounce will stay high and likely rise. Gold has been a reliable investment for over ten years and is the traditional safe haven when the stock market goes bad. On the other hand, the stock market will continue being mixed. This trend will continue until the economy starts to create jobs. This is not expected to happen this year.
With so many local and state governments letting workers go and many businesses waiting for the economy to improve it is likely the unemployment rate will remain above nine percent at least into next year. Businesses are reluctant to expand in this economic climate. Most are taking a wait and see attitude.
The debt dilemma in Europe and the United States are approaching the point of becoming unsustainable and will continue to have a negative impact on future job creation. Some economists are warning that all the jobs lost during this downturn may not be replaced until after 2015. Others think it might take even longer to recoup the losses.
Finally, the debt problems of the United States and Europe have caused the stock market to be volatile. It has also caused gold to sky rocket in price. No significant economic growth is expected this year. This means the stock market will be sluggish, however gold will stay high.