Tick tock, tick tock, tick tock....And so the clock continues to wind down to the witching hour at which the U.S. Government will hit the debt ceiling and no longer have the ability to borrow more money. No one knows for sure exactly how this scenario could potentially play out as it has never happened before.
The possibilities are not pretty though. Social Security payments could stop, military readiness could suffer, and other vital services could come to a halt. While we still believe this scenario to be unlikely, it is a possibility that must be examined. Essentially no progress was made over the weekend concerning the current U.S. Government shutdown, and stock index futures are voicing their displeasure as they opened sharply lower last night to begin the week. Although currently well off the overnight lows, stock index futures are still sharply lower and if no progress is seen today between the two sides we could see further selling as the day wears on.
Thus far, markets have dealt with the two week old shutdown very well. We have not seen panic selling enter the markets-at least not yet. It still seems as if investors believe that the government will reach a last minute deal to avoid hitting the debt ceiling and a potential default. One can see however, that investors are not getting more anxious here as we get down to the wire.
Even with stocks set to open sharply lower, perceived safe-haven assets are not necessarily being bought up with two hands. In fact, bonds and notes are flat while the U.S. Dollar index trades lower. Gold prices are higher today, trading up about $15 per ounce as of this post. Gold prices on Friday hit a new swing low and traded at the lowest levels since July.
Today's price action so far looks more like a corrective bounce then investors scrambling to get long gold. Although there are likely some fresh buyers entering the market today, gold is not performing the way one might expect given the current crises. Clearly this can change on a dime, and as we get closer to the deadline perhaps buying interest in precious metals will pick up. Banks are closed today for the holiday and this could also potentially keep things a bit muted today.
From a technical standpoint, the gold bulls need a solid close or consecutive closes above last week's highs in the $1330 area. Until then, the bears are likely to remain in full control. Although we see some support at $1250, the gold market looks as if it wants to keep working lower. A break below $1250 sets the stage for a re-test of the June lows in the $1182 area. This could be where the real battle is fought and could likely determine gold's direction for the foreseeable future.
