Government Shutdown Fears Could be Good for Gold Investors

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Gold bullion
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By Sri Jegarajah

Spot gold prices are likely to fall this week though declines may be limited by investors seeking a safe-haven alternative to the weakening dollar as the U.S. budget impasse deepens and fears of a government shutdown loom, according to CNBC's latest market survey of traders, analysts and strategists.

The Republican-controlled House of Representatives early on Sunday passed a measure that ties government funding to a one-year delay of President Barack Obama's landmark health care restructuring law.

Senate Democrats have vowed to quash it, Reuters reported. If a spending bill for the new fiscal year is not passed before midnight on Monday, government agencies and programs deemed non-essential will begin closing their doors for the first time in 17 years.

"I don't dismiss the budget dramas too lightly," said Ric Spooner, Chief Market Analyst at CMC Markets in Sydney. "Trusting politicians to do the sensible thing is not something I like to put a lot of money behind. This situation could turn out to be a source of volatility."

Even if there is a last minute breakthrough to avert a government shutdown, financial markets still face the risk of a failed attempt to raise the $16.7 trillion debt ceiling by mid-October – the next potentially bruising political stand-off – which could force the U.S. to default.

"The market is complacent about government funding and the debt ceiling," Jonathan Barratt, chief executive officer of Barratt's Bulletin, a commodity newsletter in Sydney. "We are back in the market at $1,324 as we expect a little safe haven buying. We added to our position on the break of $1,333 and are now targeting $1,350."



A softer dollar "should be supportive of gold weakness," Barratt said, noting "U.S. (bond) yields are heading back higher which also should support things."

Currency speculators cut their bets in favor of the U.S. dollar to the lowest net long in seven months in the latest week, according to data from the Commodity Futures Trading Commission released on Friday.

The dollar dropped broadly on Friday, hitting a seven and-a-half month low against the safe-haven Swiss franc, dented by the prospect of a U.S. government shutdown and a lack of clarity over when the Federal Reserve will scale back stimulus.

"The dollar is playing a huge roll," said Sean Hyman, Editor of Moneynews at Ultimate Wealth Report. "It's been dropping since last July and appears to have broken its two-year uptrend line. If that continues, that alone will be very supportive of gold and silver heading higher."

Hyman added: "I believe gold heads to $1,500-$1,575 next. Could it pullback more first? Sure, but I think that's where gold ultimately goes next."

Sentiment is almost evenly split this week although the overall tone is leaning towards those with a negative price bias but only marginally.

Exactly half of the respondents in CNBC's poll of gold market sentiment (eight out of 16) believe prices will fall this week while 44 percent (seven out of 16) expect gains. One respondent expects prices to trade around current levels.

Last week's CNBC gold sentiment correctly predicted prices would climb. Latest data from IG Markets shows 77 percent of more than 501 clients with open positions in gold expect prices to climb while the remaining 23 percent are betting on price falls.

Gold for December delivery settled up $15.10, or 1.1 percent, to $1,339.20 an ounce on the Comex division of the New York Mercantile Exchange, helping bullion record a modest 0.5 percent gain for the week.

- By CNBC's Sri Jegarajah. Follow him on Twitter @cnbcsri

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7 Comments

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mac2jr

There was a time when gold was selling for over $1,500 per ounce, and then it fell overnight to less than $35 per ounce, that was over a hundred years ago.

Gold is a Fools Paradise, hence it should be considered Fool's Gold.

The market is owned by a select few billionaires that manipulate the buy and sell to suit their bank accounts.

Beware....

September 30 2013 at 6:33 PM Report abuse +1 rate up rate down Reply
maceandemma

They keep trying to push gold back up. It won't work. Gold is still overvalued, those who bought at anything over $1500 are out of luck. Take your losses and write it off (that's funny with all the complaints about taxes, even though we are at historic lows).

September 30 2013 at 2:36 PM Report abuse +1 rate up rate down Reply
betty_brock

They never shut the government down. They just keep spending money we don't have.

Borrow, print, tax, spend.
Will this insanity never end?

September 30 2013 at 1:26 PM Report abuse -1 rate up rate down Reply
1 reply to betty_brock's comment
betty_brock

OK, they did shut down. It won't last long and then there will be retro paychecks for everyone. Let the "non essential" workers stay home forever.

October 01 2013 at 9:14 PM Report abuse -1 rate up rate down Reply
ctheleroys

The government in the US today is proving that power corrupts. Take away their pay due to poor performance!!

September 30 2013 at 10:05 AM Report abuse +1 rate up rate down Reply
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September 30 2013 at 7:42 AM Report abuse rate up rate down Reply