Gold and silver made substantial gains this week thanks to Congress finally drafting deals on both the debt ceiling and the budget. On Wednesday, just one day before the debt ceiling was set to be reached, both Democratic and Republican sides of Congress came together and drafted a budget and were able to agree on raising the debt ceiling. This news was welcomed with open arms by most Americans, but perhaps most happy were the 800,000+ federal employees who have been without pay since the beginning of the month.
While the deal being reached was initially great for most markets, less than a day later stocks and currencies were declining in value due to one very important detail of both the budget agreement and the debt ceiling.
What All This Means for Precious Metals
Now that the government is back open, many people think it is back to business as usual, but such is not the case. Though the government was only shutdown for a little over two weeks, the adverse affects it will likely have on US economic growth are soon to be realized, according to many market experts. Not only that, but many popular news agencies are neglecting to inform people that both the debt ceiling and budget agreements are temporary in nature. The budget reached by Congress only allocated enough money to keep the government functioning normally until the middle of January. The debt ceiling is only a temporary patch on the problem as well, seeing as it was only raised to keep the US able to borrow funds until the beginning of February. All of this information, once digested, has left many investors realizing the harsh reality that we stand the chance to face another government shutdown only a few months down the road.
The deals formulated by Congress were beneficial for precious metals on two fronts. For one, the temporary nature of both deals means that we could see the very same type of government shutdown during the early stages of 2014. This possibility is making investors skittish in regards to stocks and currency investments. In other words, safe-haven demand for gold and silver is beginning to see signs of growth and is expected to remain on the rise.
The other reason the whole shutdown and subsequent deal scenario is positive for precious metals is due to the fact that the Fed will likely have no chance of altering QE by the end of the year like many thought they would. Before the extended shutdown ever occurred, it was a widely held belief that Quantitative Easing, the government’s monthly bond-buying initiative, was going to be weakened before the turn of the year. Now, with economic data seemingly stuck two weeks in the past, and US economic growth likely to be negatively impacted by the shutdown, the Fed will have no real justification for tapering the very bond-buying program that is keeping our economy afloat at the moment.
Other News From Around the World
In other news, it was reported that China’s GDP grew at a rate of 7.8% in the third quarter of 2013, when compared to the third quarter GDP of last year. This amount of growth was more or less in line with expectations, and acted as a positive underlying factor for precious metals.
The US Dollar continues to decline in the wake of the government shutdown and is at a more than ten month low. Investors in currencies have realized that the deals reached by Congress are only temporary and do not want to buy up US currencies as they stand the very high likelihood of declining once more in just a few month’s time.