(Kitco News) - After seeing its best month in decades, it’s not surprising that investors are taking profits in gold, keeping prices below $3,900 an ounce—for now.
It is difficult to see any significant downside for gold, as its fundamental support remains extremely strong. The factors that have pushed prices up more than 40% this year—its best annual gain since 1979—continue to intensify. In fact, we can now add one more driver to gold’s impressive bullish list: the U.S. government shutdown.
It has only been a couple of days, so Congress' inability to come together to pass new budget legislation is not yet having a major impact on the economy. But the longer this political impasse lasts, the greater the eventual impact will be.
According to some initial estimates, the U.S. economy could lose around $7 billion in activity for every week the shutdown lasts. A White House memo by the Council of Economic Advisers, obtained by Politico, suggested the economic hit could be as high as $15 billion per week.
Betting websites forecast that the shutdown could last about 11 days. However, whether Congress passes legislation next week or it drags on beyond 35 days—which would break the record from President Trump’s first term—the damage to America’s reputation on the world stage has already been done.
With Trump’s tariffs and global trade war, America cannot afford to lose any more credibility. Last month, we already saw a mass exodus from the U.S. dollar into gold. In a note published this week, JPMorgan called the investment trend the “debasement trade.”
According to the bank, retail clients are starting to lose confidence in fiat currencies and are concerned about longer-term inflation and debt debasement due to persistently high government deficits across major economies.
They are a little late to the party, as central banks have been banging this drum for the last three years, diversifying away from the U.S. dollar and into gold.
However, JPMorgan said that gold’s rally has now moved into a new phase as retail investors jump into the market. The sentiment is backed up by data, as investment demand for gold-backed exchange-traded funds saw record interest last month.
Aakash Doshi, Head of Gold Strategy at State Street Investment Management, told Kitco News that September was a record month for SPDR Gold Shares (NYSE: GLD), the world’s largest gold-backed exchange-traded fund. GLD saw its gold holdings increase by 35.2 tonnes in September, with one-day inflows of 18.9 tonnes on September 19—the biggest increase on record.
What is interesting is that even with September’s historic run, global holdings in gold ETFs are still below the record levels seen in 2020.
That’s it for this week. Have a great weekend!
Neils Christensen
Neils Christensen has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press. Neils can be contacted at: 1 866 925 4826 ext. 1526 nchristensen at kitco.com @KitcoNewsNOW
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