Gold prices are a bit lower here Friday morning as some profit taking sets in ahead of the weekend. Without a doubt, the big story of this past week has been lawmakers getting a deal done and reopening the government. The partial U.S. Government shutdown has been the center of attention for markets and investors over the last two weeks and change.
The issue now becomes at what point does the debt ceiling and budget take center stage again. Lawmakers have essentially kicked the can down the road again, and unfortunately these budget problems are not going to go away. Hopefully, some real progress will be seen between democrats and republicans in the meantime. Although investors are certainly breathing a lot easier now we have to question just how long this optimism will last if progress is not made.
The recent government shutdown and budget impasse may have some significant effects on the economy. It is difficult to gauge just how much of an effect however, as the lack of data over the last couple weeks will need to be resolved. In addition, it will take a bit of time to see how the economy has been effected.
It goes without saying that a great deal of money has been wasted as the shutdown wore on. What makes all of this significant for gold is the fact that many now feel that the Fed will have no choice but to put tapering off for a while. It is quite likely we do not see any Fed tapering until sometime in the first quarter of next year. This could potentially give gold and the precious metals complex a boost.
Following the budget deal this week, the dollar lost a lot of ground and is trading currently at levels not seen since last February. While stocks are rallying on the news, it is very clear that this deal is only a very short term solution. The dollar may stay under pressure as the possibility of U.S. credit downgrades increases. This dollar weakness could also lend support to gold and precious metals. We feel that gold could benefit from safe-haven buying if a downgrade came to pass or if real progress is not made in the coming weeks.
From a technical standpoint, gold prices look to be on the offensive after yesterday’s strong gains. The market is now trading above the 9 and 20 day EMA’s and is currently pausing right at the 50 day EMA. A break above current levels and the key 50 day EMA could attract a large round of fresh buying into the market and gold could see $1350 in very short order. On the downside, the $1250 area is seen as first major support.
