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Peculiarities of Gold: Precious metal falls on U.S. uncertainty

By September 12, 2013 January 9th, 2014 No Comments

Gold edges lower as the US government starts shut down amid budget row, therefore warding off investors from risk on assets.

Strangely the dollar which tends to inversely correlate with gold has lowered today since the shutdown.

Investors are likely to prefer to stick with the dollar remaining hopeful that after the fiscal problems are cleared the fed may be ready to begin scaling back quantitative easing.

The reason for the shutdown is due to the republicans and democrats spat over President Obama’s new healthcare laws which have been dubbed Obama-care.

In short the republicans would like Obama-care to be delayed for a year in exchange for approving the budget deal, which the democrats heavily oppose to.

The republicans have in effect made demands that they already knew would not be agreed, perhaps in order to not appear weak.

However, the resulting consequence is chaos and mayhem as we see a close down of many non essential government functions.  Obviously military and emergency services are continuing to operate but many civilian workers have been told to remain at home with as many as 700,000 employees facing unpaid leave.

Last night Obama tweeted “They actually did it.  A group of republicans in the house just forced a government shut down over Obamacare instead of passing a real budget.”

The shutdown is the first in 17 years, back when the fed shut down for 21 days.  If this shut down lasts for the same length of time Goldman Sachs have predicted this could slice up to 0.9% from US GDP for this quarter.

To make matters even more complicated on the 17th October the borrowing deadline will be up known as the so called debt ceiling.  The debt ceiling must be extended by 17th October in order to avoid disaster spilling on to US and international markets.

So far the republicans have also threatened to not agree on lifting the debt ceiling without their healthcare delay coming into force, if this does material Obama will have no option but to break the law to prevent a countrywide crisis occurring.

For now we sit on the edge of our seats waiting for the next twist of this constitutional crisis and see whether a agreeable solution can be reached.