Gold News

Gold Price 'Resilient' Above Financial Crisis High as US Government Shutdown Looms

GOLD PRICES steadied at last week's finish on Monday, down $160 per ounce from this May's new record but holding above 2011's then-all-time peak – top of gold's long financial crisis bull market – even as the sell-off in US Treasury debt took longer-term interest rates up to fresh 16-year highs ahead of next weekend's looming government shutdown in Washington, writes Atsuko Whitehouse at BullionVault.
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With an agreement between hardline Republican and Democrat politicians looking very unlikely before midnight Saturday's deadline, federal workers will begin to be furloughed, bringing all but 'essential' government operations to a halt.
After hitting a 10-week winning streak, the Dollar index – a measure of the US currency's value versus its leading peers – climbed to year-to-date records after comments from two Federal Reserve policymakers repeated the US central bank's message that it will keep interest rates higher for longer to fight too-high inflation.
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing costs – also rose Monday, peaking at new 16-year highs above 4.50% as bond prices fell yet again.
"I'm surprised at how resilient gold has been," says Anthony Saglimbene, chief market strategist at $1.1 trillion advisory and asset manager Ameriprise Financial, pointing out that gold does not produce any income, while cash now pays the highest nominal rate in 2 decades.
Last week the US national debt passed $33 trillion, with key government services heading for another 'shut down' from next weekend as lawmakers look increasingly unlikely to strike a budget deal in the face of opposition from the hardline wing of the Republican party.
Chart of the United States' outstanding debt. Source: Statista
"If the departments of labor and education have to shut down for a few days as we get their appropriations in line, that's certainly not something that is optimal," said key Republican hold-out Matt Gaetz on Sunday. 
But still refusing to back a stop-gap spending deal which would fund the US government for somewhere between 14 and 60 days, "I think it's better than continuing on the current path we are to America's financial ruin," he says.
The US government's $31.4 trillion debt ceiling was suspended at the end of May until 1 January 2025, after Republican and Democrat leaders agreed to avert what would have been the United States' first-ever default with just 2 days to spare.  
The gross national debt has grown repeatedly since then, swelling by $1 trillion in the last three months alone.
"It is fair to say that the expansion of the US government's debt has made the market more aware of gold's role as a safe-haven asset," says Bruce Ikemizu, chief director of Japan Bullion Market Association in his latest comment.
Citing Washington's mounting debts and partisan brinkmanship, ratings agency Fitch downgraded US sovereign debt last month from triple-A to double-A plus, the first time since S&P's downgrade of 2011 – which coincided with gold's jump to then all-time highs at $1920 – marked a leading credit agency saying that US government bonds are not 'risk free'.
Gold prices in US Dollar terms today held around $1924 per Troy ounce, while wholesale bullion in the spot market traded flat at £1573 for UK investors and edged 0.1% higher to €1809 for European investors.
Gold prices in China – the precious metal's No.1 consumer and central-bank buyer – meanwhile rose back to ¥474 per gram, close to mid-September's fresh record highs. That took the Shanghai premium over London quotes up to $97 per ounce, the highest since Shanghai's all-time record gold premium of $121, hit the day before the People's Bank finally relented on issuing new bullion import licenses.
Chinese equities today fell amid new concerns about the world No.2 economy's massive property market as embattled developer Evergrande said Sunday it is unable to issue new debt due to a legal investigation, and European share also declined, with the pan-European Stoxx 600 index sliding 0.8% amid news of worsening German business sentiment
Oil prices rose, recovering some of last week's losses after the US Fed's 'hawkish' interest-rate forecasts, with Moscow issuing a temporary ban on gasoline and diesel exports to most countries last Thursday.
The price of silver, primarily an industrial metal, held unchanged Monday around $23.50 per ounce after rising 2.3% last week.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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