What the Sequester Means for Gold

Over the past week, we had many individuals ask, “What is the Sequester and how will it relate to the overall value of gold?” Here is a brief overview on the sequester and what it means for most individuals.

Sequester Definition:

According to Wikipedia, the Sequester is a group of budget/spending cuts to various categories of federal spending which took place on March 1st of this year. Discretional spending is the area that will be most affected which includes defense and non-defense elements.

Sequester Pros & Cons:

The upside of the sequester is that it will begin to curtail government spending which continually increases our national deficit. Beyond that it seems to be fairly subjective. Individuals who are vehemently against a large military and government may welcome the Sequester. A massive loss of jobs will begin due to the upcoming cuts in education, nuclear safety, Medicare, foreign affairs, homeland security, national parks, public lands, travel programs, defense, criminal justice, education and many more.

The Government & the Sequester:

Many are wondering what the Sequester is going to do as it moves through Washington. The overwhelming fear is that of a potential government shutdown if some type of alleviating measures cannot be reached soon. Senate minority leader Mitch McConnell recently spoke out regarding the matter, “We are optimistic that we will be able to pass a continuing resolution both through the House and the Senate at the sequester level, and thereby not have a huge dispute over the continued operation of the government for the rest of the year. There seems to be no interest on either side in having a confrontational government shutdown scenario.”

Boehner and Obama agree that the federal budget needs that level of deficit reduction and more, but sharply disagree over how to achieve it. President Obama proposed to resolve the sequester and reduce our deficit by over $4 trillion dollars by cutting spending, finding savings in entitlement programs and asking the wealthiest to pay more taxes. Speaker Boehner blames Democratic resistance to spending and entitlement cuts and said there was $800 billion in deficit reduction that could be achieved by only closing loopholes and reducing tax expenditures.  The bottom line with the sequester, people are going to lose their jobs and it will hurt our economy.

What will the Sequester mean for Gold values?

There is a long list of negative outcomes due to these spending cuts, but there could be an upside for gold. Large political uncertainty and spikes in unemployment have historically been beneficial for the price of gold. Gold has recently seen a lull in prices over the past few weeks. Many individuals believe the Sequester will likely have a dramatic positive impact on Gold. There are two dates investors should keep their eyes on. March 27th is when current funding for many government operations will expire. Furthermore, two months later on May 19th, our economy nation will reach the debt ceiling.

We believe the time to buy gold is now. With this upcoming one-two combo of events, gold stands to gain major ground. Savvy investors will not wait until the end of March to increase their holdings. The sequester could have an major impact on our economy. American Bullion specializes in adding gold and silver to retirement accounts. If you have a question or would like to know more about your investment options, please call 1-800-326-9598 to speak with a precious metals specialist. American Bullion and its agents are not registered or licensed by any government agencies and are not financial or tax advisors.

Resources: Wikipedia, PBS, CNNmoney, Whitehouse, FoxNews

Photo: USAToday – AFP/Getty Images