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Gold Prices See Renewed Momentum, U.S. Dollar Hammered As Gov’t Shutdown Looms

Kitco News

(Kitco News) - Gold is regaining lost ground Friday as the U.S. dollar is once again trading near 3-year lows on increased fears of a U.S. government shutdown, according to forex analysts.

Gold Prices See Renewed Momentum, U.S. Dollar Hammered As Gov't Shutdown Looms“Gold found support on Friday in the form of dollar weakness and market anxiety over a potential U.S. government shutdown,” said Lukman Otunuga, research analyst at FXTM.

As Republicans rush to gather enough votes to reach an agreement to fund the government before midnight, gold is likely to stay supported throughout the day, Otunuga added.

Peter Hug Kitco’s global trading director, is also expecting gold prices to remain supported heading into the weekend as worries over a government shutdown grow.

“The rhetoric ratcheted higher overnight as Democrats continue to demand a deal on DACA as part of the funding extension,” Hug said in his commentary. “Dollar selling accelerated and gold pushed higher. Volatility will increase throughout the day and traders are likely to go into the weekend long as a “just in case” trade.” 

Spot gold was last seen trading at $1,333.30, up 0.51% on the day, and February Comex gold was last at $1,334.00, up 0.51% on the day.

Live 24 hours gold chart [Kitco Inc.]

Looking at gold’s technical picture, the market will continue its bullish trend, added Otunuga, as prices continue to see higher highs and higher lows. “A decisive breakout and weekly close above $1340 could pave a path towards $1360,” he said.

Meanwhile, the U.S. dollar is going to remain under pressure, Otunuga noted. “Sentiment remains bearish towards the Dollar with further downside on the cards, as political uncertainty in the United States weighs heavily on the currency,” he said.

The U.S. dollar index was last trading at 90.44, down 0.04% on the day. 

“The 91.00 has acted as a minor resistance this week with some support found around 90.30. An intraday breakdown below 90.30 could invite a decline towards 90.00,” Otunuga explained from a technical point of view.

The U.S. dollar index is likely to post its fifth consecutive weekly loss, which would mark the longest drop since April-May 2015, analysts at Brown Brothers Harriman (BBH) said in a note on Friday.

“The dollar bears have not only pushed aside the rise in U.S. interest rates but also economic data that suggests the U.S. economy accelerated in Q4 17 (initial estimate will be reported next week)” BBH analysts wrote.

Some economists remain cautiously optimistic that a deal can be reached before the deadline to avert a government shutdown.

“It is still possible that Congress will reach a late deal to avoid a partial government shutdown beginning this weekend, but the chances of agreement seem to be slipping away,” said Paul Ashworth, chief U.S. economist at Capital Economics.

Ashworth added that even if there was a shutdown, it would unlikely impact the American economy in any significant way.

“The upshot is that a shutdown, even if it lasted for a week or more, would have only a very modest impact on first-quarter GDP growth, subtracting perhaps a few tenths at most,” he wrote in a note to clients.

But, the impact of a shutdown on gold might not be straightforward as some gold bulls would like to believe, according to Kitco News’ latest feature on the topic. 

History shows that based on previous government shutdowns, gold prices actually dropped.

Some of the things to expect if a government shutdown happens this weekend is the closure of all “nonessential services.”

This means that the military, social security services and the U.S. postal service will continue to operate. But, services like economic data releases, museums, federal parks and monuments will be closed and employees will be put on temporary unpaid leave.

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