(Kitco News) - The partial shutdown of the U.S. government this week had a limited impact on gold, which is in line with past shutdowns, but the looming debt-ceiling debate could be another story, said analysts with Barclays.
“While our economists maintain the view the debt ceiling will be raised by 17 October, they note the larger risk is the market effect if the debt ceiling
is not raised,” Barclays said in a research note Friday.
This would pose “upside risk” for gold, the bank said. The last debt-ceiling debate back in 2011 spurred heavy buying.
Gold did not draw a safe-haven bid this week, declining even though the U.S. government has been partially shut down since Tuesday due to a standoff between Republicans and Democrats over a continuing resolution on the budget.
Overall, the metal’s reaction to the shutdown “has been in line with its reaction in the past,” Barclays said.
“Looking at gold’s immediate price response following the 17 occasions of government shutdown since 1976, on average, prices have risen a modest 0.3% on the first day of the shutdown; on Tuesday, prices fell by 3.1%. In the week before the shutdown, on average, prices have fallen by 0.4%; this time, prices are down 1.4%,” Barclays said.
“The duration of the government shutdown has varied from one day to 21 days, with gold prices averaging a modest 0.1% rise, ranging from a drop of 3.1% to an increase of 0.9%. One week after the shutdown, prices have risen by a modest 0.3%, on average. Overall, gold’s price reaction has been muted.”
By contrast, during the previous debt-ceiling debate two years ago, gold prices rallied from below $1,500 an ounce at the start of July 2011 to almost $1,800 in August as gold’s safe-haven appeal attracted broad investor interest, Barclays said.
“Tactical positioning in Comex gold rose 55% over the course of a month to early August, while physically backed ETP (exchange-traded-product) holdings rose
more than 100 (metric) tons over the same period to a then-record of more than 2,400 tons,” Barclays said.
“Thus, while the temporary U.S. government shutdown has not been a positive driver for prices, the risk of a debt ceiling breach holds scope to reignite interest. Having said this, our economists and rates strategists believe the current crisis over the continuing resolution reduces the chance of a new political crisis over the debt ceiling.”
By Allen Sykora of Kitco News firstname.lastname@example.org