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Overriding of veto could be good for gold

Congress’ historic overriding of Obama’s veto of the bill that will allow the families of 9/11 victims to sue Saudi Arabia for its alleged role in the terrorist attacks — intentional or inadvertent — has potentially dangerous ramifications for the US but could result in a really positive effect for the price of gold.

The Senate voted 97-1 to override the president’s veto, while the margin in the House was 348-77.

Since the bill was introduced, Saudi Arabia has lobbied against it, threatening to sell some or all of its vast holdings of US debt and real estate.  Although many analysts dismiss the threat, there remains the real possibility of Saudi Arabia selling because when suits are filed a judge could freeze Saudi assets in the US.

If the Saudis quit buying US debt, where will it go for the safety that a sovereign fund wants ?  German debt would be a logical choice except that the European Central Bank is buying up most of those bonds in its €80 billion/month quantitative easing program, which has driven much of Germany’s debt into negative returns.

As Financial Times editorialized today, this law “risks incentivizing countries to look elsewhere for a reserve currency.”  There is no better reserve currency than gold, which has been valued in all civilizations through history.

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