Posted on September 30, 2013
Gold prices are starting the week off on a weaker note as a partial U.S. Government shutdown is looming large. Looking across the board this morning, it certainly appears that investors are in no mood for risk taking as stocks are trading sharply lower as well as commodities and risk assets such as crude oil, natural gas, and precious metals.
Tomorrow could be the first U.S. Government shutdown in 17 years-and investors are clearly spooked. There as of right now does not appear to be any progress being made, and front what we can see the odds of a shutdown are high. Many do not know or understand exactly what a partial shutdown consists of, and the lack of knowledge could lead to panic selling across the board.
This potential shutdown will dominate the day’s trade today, and it will continue to do so until a resolution is reached. In addition to tomorrow’s potential shutdown, the U.S. has another major problem looking and that is the ability to borrow money to keep the government funded and running. The government is set to reach the limits of its borrowing authority in mid-October and the clock is ticking.
In addition to the ongoing budget crises, gold investors will continue to look for clues as to the Fed’s next moves with regard to monetary policy. This week is somewhat light data wise, with investors getting the latest readings on PMI manufacturing, factory orders, ISM non-manufacturing, and construction spending. The biggest data points of the week will be commentary by Ben Bernanke on Wednesday and then of course Friday’s much anticipated non-farm payrolls data for September.
Investors will be watching the jobs data very closely, as it could provide more clarity on the timing and extent of any tapering the Fed may do. Consensus estimates are for 184,000 jobs created with a jobless rate of 7.3%. While a number that comes in as expected may not provide a lot of additional clarity, a large miss or a significant beat could provide strong clues about the Fed’s next course of action. This certainly has the potential to move gold prices either way.
Of course, if there is a government shutdown with no resolution on Friday, we are hearing that the jobs data will not be released as all operations would be suspended and employees furloughed. This week could see some extreme volatility due to all of these circumstances. Gold for now appears to be vulnerable to panic selling as are other risk assets. We do feel however, that gold prices could see a bid set in should the situation deteriorate and investors begin to look for perceived safe haven assets in which to put their money to work.