On Monday, gold prices were up 1%, recovering slightly from the drop that occurred on Friday due to a single large sale. On Tuesday, physical gold is trading mostly flat, currently at $1,271 an ounce, as investors wait to see what Washington is going to do about the shutdown and debt ceiling.
Gold was on the decline last week as President Obama met with congressional leaders about ending the shutdown and raising the debt ceiling. In addition, Senate Majority Leader Harry Reid stated that he and Minority Leader Mitch McConnell were nearing an agreement. The yellow metal officially hit a three-month low when the week was capped off with a mini-crash triggered by one large sale.
This week, things have changed a bit. In a phone interview with Bloomberg, Bart Melek, the head of commodity strategy at TD Securities in Toronto, said, “Demand for gold is on the rise as it’s not apparent anymore that the parties will reach an agreement before the deadline.”
This increased uncertainty caused gold to advance the most in a week on Monday, as investors flocked to physical gold as a safe-haven. According to Bloomberg, gold futures for December delivery added 0.7 percent, the biggest jump for a most-active contract since October 7th.
Bernard Sin, head of currency and metal trading at bullion refiner MKS (Switzerland) SA in Geneva, told Bloomberg, “We’re seeing some quite good physical demand at these levels. The U.S. is the main story, focusing on the developments around the shutdown. Prices will continue to be volatile.”
This volatility has given investors an opportunity to buy gold at its lowest levels in quite some time. Bloomberg shows that gold is down 24 percent this year, heading for the first annual drop since 2000. They state that this is due in large part to the fact that “some investors lost faith in the metal as a store of value on speculation that the Federal Reserve will slow debt purchases.”
The Federal Reserve has not slowed its debt purchases, however, and it has indicated that a tapering may not happen anytime soon given the situation in Washington. Most experts agree that even if lawmakers beat the debt ceiling deadline and end the shutdown that inflation is inevitable and stock market volatility should remain for awhile. Physical gold is a commonly recommended hedge against both of those situations and it just happens to be at “buy-low” levels as well.