How Can You Safeguard Your Wealth When the Debt-Limit Default Risk Is Higher Than Ever?

President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders are planning a meeting Tuesday for talks on spending as a potential US debt default looms — though plans could still change. Biden has been tight-lipped about terms of the negotiation but said he believed a deal could be reached, adding he's a "congenital optimist." The debate is bad for markets either way, according to Morgan Stanley's Michael Wilson. He says many are framing the event as "a lose-lose" given the volatility it's likely to cause, even though most expect the situation will be resolved. He predicts sharp swings in equity markets.

The risk of a US debt default is greater than it's ever been, threatening to tip global markets into a brand-new world of pain. For investors, there are few places to hide other than the oldest hedge in the book: gold.

The precious metal is by far the top pick for those seeking protection in case Washington's game of chicken over the debt ceiling ends in a crash, according to Bloomberg's latest Markets Live Pulse survey. More than half of finance professionals said gold is what they would buy if the US government fails to honor its obligations.

About 60% of MLIV Pulse respondents said the risks are bigger this time around than in 2011, the worst debt-limit crisis of the past. The cost of insuring against non-payment through one-year credit default swaps has surged well past levels seen in previous episodes, although they still suggest that the actual chance of a default is relatively slim.

The risk of a pivot away from the greenback is something that investors are giving serious consideration. An earlier MLIV Pulse survey showed that a majority of respondents see the dollar making up less than half of global reserves within a decade.