Gold unmoved by global events

FRANKFURT  (Oct 10)   GOLD has remained surprisingly flat in the face of the US budget crisis and uncertainty over raising the debt ceiling. The price, at around US$1315/oz, is up from its dip on a big sell order on the Comex exchange on September 30 but is still nearly $100 below its end-August level.

When the US government last shut down for three weeks in late 1995, gold prices gained about 7,5% but dropped rapidly as soon as the crisis was over.

Suspension of all nonessential services by the US government because of an impasse between Democrats and Republicans on the budget harms the US economy and weakens the dollar.

In theory, as long as the US economy remains weak, the Federal Reserve will have to maintain quantitative easing, which is good for gold.

Another crisis looms as the US government reaches its maximum debt level. Congress will have to agree to raise the ceiling, or the US will default on its debt, which would be globally negative but also good for gold.

Fitch Ratings said last week it was using a base price of $1200/oz for gold, but the uwinding of stimulus measures by central banks could depress the price for an extended period.

Yet delegates polled at the London Bullion Market Association conference in Rome expected gold to reach $1405 by next month.