Weekly Gold & Silver Market Recap – 10/4/2013
GOVERNMENT DEADLOCK ON SPENDING BILL WEIGHS ON FUTURES MARKET
As the week began, the focus was toward the U.S. government who was attempting to reach an agreement to avoid a shutdown. Congress had until Monday night to pass a budget bill otherwise causing a partial government shutdown resulting in thousands of worker furloughs. “As we’ve seen in the past, the months leading up to the deadline are simply seen as an opportunity for both sides to gain political points, while making a villain out of the opposition. It’s only in the final 24 hours that any actual progress tends to be made,” Craig Erlam, market analyst at Alpari U.K., said. “We can only hope that this is what we’re seeing again.” As America waited for legislation in Washington, the market anticipated Friday’s monthly jobs report to be delayed from a government shutdown. The jobs report has been the most highly scrutinized piece of economic data in the lead up to the Federal Reserve’s decision on monetary easing measures.
PRECIOUS METALS PRICES AFFECTED BY ECONOMIC UNCERTAINTY
Monday the Gold price took a dip as the inevitability of stimulus tapering remains to weigh heavily on the minds of Precious Metals investors. Though Gold is up more than 8 percent from lows experienced in late June and July, the metal continues to look for a catalyst to break out of bearish territory. The impasse in Washington regarding a spending bill was thought to be a bullish factor as uncertainty surrounding government stability typically has been an important motivator of Precious Metals prices.
U.S. GOV’T SHUTS DOWN
Precious Metals prices fell in overnight trading into Tuesday, shrugging off brief gains immediately after the U.S. government shut down for the first time in 17 years. One major concern, however, is that Congress could potentially have an even harder time with the debt-ceiling deadline, which is Oct. 17. Commerzbank analysts explained the worst-case scenario, writing, “In the worst case, the country could actually face insolvency, and while there is very little chance of it coming to that, such a development would seriously push up Gold prices.” An estimated 800,000 federal government workers were reportedly off the job as Congressional Republicans and Democrats battle over President Barack Obama’s Affordable Care Act.
CURRENT POLITICAL, ECONOMIC CLIMATE BOOST GOLD
Wednesday was the second full day of a U.S. government shutdown that took its toll on markets as a weaker dollar pushed Gold up and forced equities down. As government officials remained at an impasse regarding passing a budget bill, the debt ceiling looming on the horizon and jobs numbers falling below initial projections, there was little to prevent Gold from rebounding off of an eight week low realized after Tuesday’s large sell-off. “The shutdown will lead to some delays in government spending, which will lead to a postponement in tapering as the Fed wants to see more signs of growth,” Scott Carter, chief executive officer of Lear Capital, said. “Also, today’s ADP numbers showed that the employment scenario still remains weak.” With a plethora of factors lined up in support of Precious Metals prices, time will tell if political and economic indicators will be foreboding enough to swing investor sentiment away from riskier investments and help Gold break out of its current bearish trend.
GOVERNMENT SHUTDOWN AFFECTING U.S. DOLLAR
Precious Metal prices received a boost Wednesday with Gold in particular rising more than 2 percent as the U.S. dollar continued to drop with economic uncertainty. "Clearly the dollar is not really playing that much of a safe-haven role through this latest episode," Vassili Serebriakov, currency strategist at BNP Paribas, said. The dollar has been suffering since Sept. 6 when the weaker than expected August jobs report was released. The Federal Reserve more than likely made their decision to announce at their policy meeting not to taper fiscal policy based on the disappointing job data. "The longer uncertainty drags out, the more of an economic impact it has and the more I think market participants will see implications for Fed policy, pushing back tapering. It should continue hurting the dollar and I think it's going to continue to grind lower,” Serebriakov said.
GOLD PARES EARLY LOSSES; STOCKS DIVE ON GOVERNMENT CLOSURE
Gold and Silver prices were slightly down Thursday as expectations for an end to the U.S. government closure appear to be fairly distant. While current political and economic factors would traditionally be bullish for Gold, investors and traders remain focused on the underperformance of the yellow metal during 2013. “If the U.S. government closure moves into next week, Gold will rise,” Chintan Karnani, chief analyst at Insignia Consultants, said. “Since Gold is below the 100-day moving average of $1,353, the overall trend is bearish to range-bound between $1,270 and $1,356.” Even as Gold rebounded from early morning lows on the heels of poor manufacturing numbers, the primary motivator of investor sentiment, and ultimately the price of Gold, is the future of the Federal Reserve’s quantitative easing program.
DEBT CEILING LOOMS AS GOVERNMENT SHUTDOWN CONTINUES
Precious Metals continued to trade lower on Friday. With the government shutdown stretching into the fourth day, many investors are still trying to figure things out. Sharps Pixley chief executive officer Ross Norman said, “Explaining what we call the ‘Frankenstein’ economy is kind of tough at the moment when things don’t move entirely as they should.”
The U.S. debt ceiling has begun to take center stage as the Oct. 17 deadline for Congress to raise the nation’s debt limit approaches. Democratic minority leader of the House of Representatives Nancy Pelosi said the current situation gives “every appearance of getting dangerously close to the conversation on the debt ceiling.” A U.S. default could have a catastrophic effect that would be felt around the world. However, as fiat currencies come and go, Precious Metals continue to have value over time.
At 4:53 p.m. (ET), the APMEX Precious Metals spot prices were:
- Gold, $1,312.80, Down $6.80.
- Silver, $21.79, Down $0.03.
- Platinum, $1,389.30, Up $17.00.
- Palladium, $700.80, Down $0.50.
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