Precious Metals

An impasse over budget talks in the United States is testing bullion’s value as a safe haven asset.

The partial shutdown of the US government caused by a budget impasse in the US Congress caused wide oscillations in gold and other precious metals this week. 

As Gold Investing News went to press Thursday, the shutdown was in its third day, with about 800,000 government employees off their jobs, while a series of non-essential government services remained closed. It’s the first time in 17 years that the US government has had to close services due to a failure by the Senate and the House of Representatives to agree to a budget.

The shutdown occurred after a spending bill freighted with Republican-sponsored provisions, meant to delay parts of the Affordable Care Act, known as “Obamacare”, failed to win support in the Democrat-controlled Senate. The government is now eyeing Oct. 17 as the date when Congress must agree to raise the country’s $16.7 trillion debt ceiling or face a potentially catastrophic default on its bills.

A break in the impasse does not appear likely in the coming days.

“It looks pretty bleak to me,” Matthew Baum, professor of public policy at Harvard University’s John F. Kennedy school of government, told CBC News.

Gold closed the week at $1,328 an ounce on Monday, ahead of the anticipated shutdown on Tuesday. When the shutdown came, investors cast aside gold’s safe-haven status in times of economic crisis, bidding the metal down close to $40, or 3 percent, to a seven-week low of $1,289.25. Factors working against gold that day included: a large COMEX sell order early on Tuesday; technical vulnerability to the $1,300 resistance level; diminished gold demand from Asia due to China’s Golden Week holiday; and disappointment that the Oct. 1 debt deadline didn’t create a rush of safe-haven investors, reported Stocks rallied on investor sentiment that the shutdown would likely be shortlived and would present a buying opportunity.

It was a different story for gold on Wednesday, however, with gold futures climbing $30.16 to $1,316.80 an ounce. Kitco reported that short covering, bargain hunting and safe-demand were all factors in the bounce-back. On Thursday gold took a hit, falling as low as $1,302.70, then moved up nearly to $1,320, before levelling off to close the day at $1,316.40 on the spot market.

As to what happens next with gold, Kitco’s Jim Wyckoff said the longer the impasse over the debt ceiling continues, the more likely the US Federal Reserve will continue its $85 billion a month bond-buying program known as quantitative easing:

“Reason: The present government shutdown or upcoming debt ceiling turmoil would likely damage the U.S. economy and U.S. consumer confidence,” Wyckoff wrote.

The Fed had considered winding QE down by about $10 billion a month when it last met in September. Keeping the $85 billion a month bond buying program in place would be bullish for gold and other precious metals.

“However,” said Wyckoff, “the other side of the coin is that any damage to the U.S. economy and consumer confidence would likely spill over into some degree of world-wide economic weakness, and mean less demand for raw commodities and precious metals.”

Company news

AngloGold Ashanti (NYSE:AU), the world’s third largest gold producer, is planning to cut 400 jobs at its Obuasi mine in Ghana by the end of the year, Bloomberg reported. The cuts are being rationalized to rein in costs as the decline in the gold price erodes profits.

Gold Fields (NYSE:GFI) has finalized its acquisition of Granny Smith Lawlers and Darlot, three gold mines in Australia owned by Barrick Gold Corp. (NYSE:ABX, TSX:ABX). The $270 million purchase will add about 400,000 ounces to Gold Field’s portfolio, Reuters reported.

Junior company news

Australian junior Sirius Resources (ASX:SIR) has extended the zone believed to contain gold anomalies at its Polar Bear project in Western Australia, reported Australian Mining. Polar Bear is surrounded by three other targets, which collectively contain about 22 million gold ounces, said the publication.

Coronet Metals Inc. (TSXV: CRF) completed construction at its Liberty Gold Processing Facility in Amargosa Valley, Nevada. The custom circuit to process gold concentrates is now being commissioned with commercial production expected before the end of October.

Continental Gold (TSX:CNLannounced the results for 28 diamond drill holes and underground sampling at its Buriticá project in Antioquia, Colombia. The drill program’s goal is to upgrade the inferred resources into measured and indicated categories. Step-out drilling highlights from two veins included 2.7 meters at 830.6 grams per tonne gold and 65 g/t silver; and 3.45 meters at 27.1 g/t gold and 11 g/t silver.


Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article. 

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