Gold and silver posted moderate losses this week as the US’ partial government shutdown stole the headlines all week long. The shutdown is now in its 11th day and at present there is no real sign that we will see an end anytime soon. In fact, some people closely following the situation referred to both Democrats and Republicans as “digging their heels in”, meaning that both sides seem to be gearing up for the long haul.
While the partial government shutdown is bad enough, another issue began to creep its way into headlines as more and more people began noticing the fast approaching debt ceiling deadline. If the US cannot raise its debt ceiling by October 17th the country will begin to default on loan obligations. The fact that the government has been shutdown, with almost 100% of its limited attention going towards the budget issue makes it hard to believe that the United States’ lawmakers have even thought about the debt ceiling. At first, it was anticipated that shutdown would only last a day or two, but now that it is in its 11th day, it is becoming a real possibility that the shutdown and debt ceiling being reached will overlap.
This whole government shutdown is being followed by more than solely Americans, as the US government and its actions have the ability to make an impact on markets all over the world. Throughout the duration of the shutdown, most markets have suffered, but recently precious metals have been hit particularly hard. The world economic marketplace is showing signs of anxiety and so long as the US government remains stagnant, that anxiety will inch ever closer to panic. The one bright side that can be potentially taken from this situation is that if the debt ceiling deadline and the shutdown overlap, it is likely that gold and silver will finally experience the increased safe-haven demand we have been expecting.
With that being said, you may be wondering why precious metals have not already experienced a spike in safe-haven demand. The answer to that inquiry is not an easy one, though many market experts have reasoned that since we have known about the budget deadline and debt ceiling for such a long time, the shock that is usually associated with these events was not present. Instead, the government shutdown was treated like an expected event and the debt ceiling is being looked at as if it is never going to happen. To this day, investors are convinced that Dems and Republicans will come together and reach a budget deal in time to avoid any worldwide economic panic. Though this is a widely held belief, I, personally, am not holding my breath.