A failure by U.S. lawmakers to raise the government debt ceiling would prompt investors to “rush away from financial assets” and buy more raw materials, according to John Kowalik at UBS Securities LLC.
A default on debt would cause “broad-based allocation in commodities and perhaps precious metals even more so,” Kowalik, the executive director of commodity structuring and marketing at UBS, said today in a speech in Chicago.
Talks between Republicans in Congress and President Barack Obama have yet to boost the nation’s $14.3 trillion debt limit, risking default next month, because of an impasse over how to tackle the budget deficit. Republicans oppose any tax increases, and Democrats won’t agree to cuts in Social Security or Medicare benefits without additional tax revenue.
A government default “would be a shock to the system,” Phil Flynn, a senior market analyst at PFGBest, said in a speech at the same event in Chicago.
While a default isn’t likely, “if it was a wake-up call to the world that we could get these budgets on a more sustainable path, that may be the slap in the face the market really needs for long-term health,” Flynn said.
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