Gold Ignoring Full US Default Risk as Oil Surges

The US jobs report week is underway, and gold is soft on 'Tombstone Tuesday', but it's headed towards a key buy zone for precious metal enthusiasts. After breaking out of its corrective channel and surging almost 20% in a month, gold is staging a classic pullback towards the breakout point.

The $4300-$4200 zone is targeted for this correction. As gold corrects, oil surges, with the target being the highs in the $110-$119 area. Mainstream media highlights what's supposedly a key relationship between oil, interest rates, and gold: that gold pays no interest and higher oil prices bring Fed rate hikes, which are negative for gold.

However, this narrative ignores the risk of a full US default, as seen in the long-term US interest rate chart. Even an 8%-10% interest rate could put the government into a state of full default. The nation's leaders and gold market narrators are ignoring this risk. When interest rate hikes become too aggressive, it's 'Queen Gold' that will shove the fiat-focused government off its cliff of debt.

The Fed can afford to 'talk hawk' while doing little with rates because inflation is only 3%-4%. If oil surges not just to $110-$119 but to Stewart Thomson's long-term target zones of $200 and $300, US inflation will skyrocket and the Fed will have no choice but to hike rates into the 8%-10% danger zone. When faced with default and bankruptcy, governments usually choose aggressive fiat currency debasement.

A large inverse H&S pattern is forming on the daily silver chart. The current pullback is forming a right shoulder in sync with gold's price action. President Donnie envisions 20% GDP growth, but debt could soon grow at an even faster rate.