Gold spot price stable amid ongoing US political deadlock

LONDON (Oct 8)  The gold spot price has been stable today as the US government shutdown entered into its second week. The precious metal traded little changed at $1,322.73 a troy ounce as of 12:18 BST, after having risen to $1,325.28 an ounce earlier. Gold yesterday rose to $1,329.11, the highest level since October 1.

US political impasse

The federal government shutdown in the United States, which began a week ago, has failed to considerably boost the safe-haven appeal of the precious metal as some analysts expected. But while the direct impact of the shutdown has been limited, the political wrangling that triggered it has raised concerns over whether Republicans and Democrats would be able to find a compromise solutions in negotiations over the potential increase of the US borrowing limit. If US lawmakers fail to raise the federal debt ceiling by the October 17 deadline this could send the country into an unprecedented debt default that could cripple the US economy and shake the global financial markets. Investors expect that Republicans and Democrats in the Congress would reach a compromise and prevent a crisis, probably in a last minute deal like they did in 2011. Gold spot price soared to an all-time high of $1,920 an ounce back then.

Some analysts focus on the fact that gold price hasn’t risen significantly despite the looming debt ceiling deadline.

“That several U.S. data releases have been temporarily put on hold due to the government shutdown further clouds investors’ ability to formulate strong views at this stage,” Joni Teves, an analyst at UBS AG in London, said today in a report, as quoted by Bloomberg. “Gold’s failure to rally convincingly in spite of the heightened level of uncertainty surrounding U.S. fiscal issues and the upcoming debt ceiling debates has likely disillusioned some of its safe-haven supporters.”

Tapering prospects

Analysts and investors have been weighing the prospects for the Federal Reserve to soon start scaling back its bullion-friendly monetary stimulus, but their ability to effectively gauge the state of US economy has been limited by the lack of key economic data releases due to the partial government shutdown. The Fed surprised traders and analysts last month by deciding to keep the pace of its asset purchases unchanged but many analysts see the decision as just temporarily delaying an inevitable tapering. Still, the current political deadlock in Washington may extend the delay, according to some analysts. "The Fed will probably postpone its retreat from quantitative easing, which could also help to push prices up," Commerzbank said in a report, as quoted by Reuters.

China reopens

The gold spot price has also received some support from China, where the market today reopened following a week-long holiday. Dealers in Hong Kong said they saw some buying interest. China is the world’s second-largest gold buyer after India and plays a key role in supporting gold prices.