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US Shutdown, Gold Price to Rocket?

Tuesday, October 8, 2013

The US political system is in turmoil, as the US budget crisis continues, the ongoing US debt ceiling debate creeps out from under the carpet and back into the headlines yet again, all eyes are on the 17th October, the day on which the US economy is estimated to hit the legal limit to which the country can continue to borrow money, if no agreement is reached before this date, the US will default on its committed borrowing, something so unbelievable, many predict the US dollar will be sent crashing down!

During an interview Friday, US Treasury Secretary Jacob J. Lew confirmed "if the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default". "There is no option that prevents us from being in default if we don’t have enough cash to pay our bills."

Technically, gold has moved into a short-term holding pattern, reports coming out of Kitco last week show signs of a potentially bearish pattern emerging, this will undoubtable become clearer as the debt ceiling debate nears boiling point. As yet, the gold price has seen only marginal gains, lifting from a PM London fix of £796.12 (01/10/2013) up to a current live spot price of £820.04 at 7:38am (07/10/2013).

Would-be gold investors have been waiting on news of new legislation to permit the increase the debt ceiling limit, but as the deadline nears, the Republican Party dig their heels in and the US shutdown begins to hit business, investors will increasingly seek gold as a safe-harbour from the potentially stormy seas of the open markets.

Key point – China, one of the largest physical gold buyers, both in private and government holding is effectively out of market for one week from the 7th October during a national Holiday. Could the Chinese return be the catalyst the market needs to fuel the next price drive?

UK private gold buying has been steadily strengthening over the past 10 days with several companies reporting stock shortages and delays to dispatch. Capital Gains Tax Free Royal Mint Gold Sovereign and Britannia products are emerging as a clear winner for level headed medium-to-longer-term investors.