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Gold Hits Another Record: Is It a Legitimate Alternative to Treasuries?

Daily Ticker

Worries over the weekend that markets would shudder if no debt-ceiling deal were reached Monday have all but disappeared. Even with no deal reached, the Dow was trading down just 80 points to 12,600 around 3:15 p.m. EDT Monday while prices slipped slightly on 10-year Treasuries.

Gold, on the other hand, continued its upward trajectory and hit a new record high around $1625 an ounce intraday before settling back to close above $1612.

Breakout's Matt Nesto joined The Daily Ticker's Aaron Task today to try and make sense of relatively calm market reaction even as the Aug. 2 deadline to raise the $14.3 trillion debt ceiling quickly approaches.

Nesto says equity investors are basically gripping on for dear life in hopes that a deal will come through in the 11th hour. As for Treasuries, investors have likely already baked the risk of a U.S. default into the price; perhaps more important is the support generated by the fact that there are just not a lot of good alternatives to U.S. debt for fixed-income investors. For example, Nesto notes that Standard & Poor's only lists four AAA-rated corporate bonds: Exxon, Microsoft, Johnson and Johnson and ADP.

As Aaron points out in the accompanying clip, that begs the question: Is the U.S. too big to fail?

If you are looking for a short-term alternative and considering gold, Nesto's advice is to consider your time horizon and think again. In the short-term, he says gold is too expensive and too risky to be a short-term alternative to Treasuries or cash. However, he says gold is still a viable long-term asset class and with its best days ahead of it. The same words of caution go for for silver, which has been on a tear this month up 16% and back above $40 an ounce.

With a week to before the U.S. hits the debt ceiling, tell us why you think investors have not rushed for the exits just yet.