Gold Indicators Still Point to Pressure on Gold Prices (Part 9 of 12)
US public debt growth
The US public debt was almost flat month-over-month in March. It came in at $18.52 billion in March, compared with $18.56 billion for February. The ratio of debt-to-GDP was also constant at 102.2% in March, based on the GDP for December 2014.
Debt-to-GDP ratio
The ratio of debt to GDP (gross domestic product) shows how much a country owes compared to how much it takes in. Investors use this ratio to measure a country’s ability to make future payments on its debt. This affects the country’s borrowing costs and government bond yields.
The US public debt is the amount of outstanding Treasury securities owed by the federal government.
Impact on gold prices
There is a major concern when it comes to increasing debt. As US public debt rises beyond a certain point, the federal government must increase taxes and cut spending in productive areas in order to service the interest costs. This action would be bad for economic growth. If economic prospects aren’t bright, people don’t have many options to fall back on. Gold is one of those few options.
Such a high ratio is negative for the US dollar’s long-term prospects, and the US dollar affects gold prices. Gold prices have an impact on gold companies such as Goldcorp (GG), Gold Fields (GFI), and Newmont Mining (NEM) as well as gold-backed ETFs such as the SPDR Gold Trust ETF (GLD).
They also impact ETFs investing in gold stocks such as the Market Vectors Gold Miners ETF (GDX). GG, ABX, and NEM make up 7.6%, 7.0%, and 5.5% of GDX’s holdings, respectively.
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