Gold Investing Prices Rise as US Default Fears Spread, Silver Jumps; Shutdown Blocks Key Market Reports

GOLD INVESTING prices jumped in early US trade on Monday, rising 1.2% after a flat start to the week in Asia and London to reach a 1-week high of $1328.50 per ounce as concerns spread over the current US government shutdown leading to a US debt default in 10 days' time.
 
"Congress is playing with fire," Treasury secretary Jack Lew told CNN on Sunday. Because "if the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default.
 
"There is no option that prevents us from being in default if we don’t have enough cash to pay our bills."
 
Gold investing analysts were left without two key reports Friday, as the US government shutdown delayed both the monthly Non-Farm Payrolls jobs report, and the weekly Commitment of Traders data from the futures and options market.
 
"Open interest, combined with price movement, is the only variable available," writes Walter de Wet at Standard Bank, "in order to get an idea of positioning" in gold investing.
 
Noting fresh reductions in the number of open contracts, de Wet says that trading volumes in gold futures "signal great indecision about gold's next move."
 
Silver also rose sharply alongside gold investing prices as US trade began Monday, leaping 3.1% to hit a 3-week high above $22.40 per ounce.
 
Stock markets entered their third week of declines, but European shares cut their opening losses and the MSCI World Index held only 2% beneath mid-September's 5-year high.
 
Comparing the current moves in gold investment with previous US shutdowns – but noting that the US has never yet seen an actual default on its debt – analysts at both Barclays and Goldman Sachs agreeds Monday the previously lackluster action "[was] not surprising" given how gold responded to the 17 previous shutdowns since 1976.
 
Falling 1.4% in the week before the shutdown began, gold investing prices had averaged a drop of 0.4% on the 17 previous shutdown events, says Barclays.
 
"Price reaction before, during and even after the shutdown," says Goldman, "has [always] been muted, even in shutdowns that have extended to three weeks' duration."
 
But with default now slated for October 17th, when the US government will run out of money under the budget expiring last month and without a new debt-ceiling agreed by Congress, "Credit markets could freeze, the value of the Dollar could plummet, US interest rates could skyrocket," Lew's Treasury Department warned on Friday.
 
"It is clear," said a note from Citigroup analysts earlier, "that investors are not very worried [about a possible US debt default] and do not expect any debt ceiling rupture to last long."
 
"It is extremely unlikely," reckons ratings agency Moody's CEO Raymond McDaniel, speaking to CNBC, "that the Treasury is [going to default].
 
"[It] feels a lot like we've seen this movie before," McDaniel said, pointing to the 2011 debt ceiling row which saw gold investing hit all-time record-high prices above $1900 per ounce.
 
"Ironically, because we have had this experience in the recent past [it] gives people more of a sense of calm than perhaps they should have."
 
"The lackluster performance" of gold investing returns, says Deutsche Bank, "may reflect the relatively sanguine approach of financial markets amidst a US government shutdown and concerns over the budget ceiling.
 
"Indeed of the several measures of risk we track, there has been little escalation in risk aversion. Unless this changes we would expect gold prices to remain under pressure."
 
Over in Asia today, Monday saw world No.1 gold investing and jewelry consumer China celebrate another national holiday as its Golden Week drew to a close. 
 
Officials in former world No.1 India meantime released a tonne of gold bullion from Mumbai airport, where it had been trapped by confusion over new anti-import rules aimed at reducing the country's large trade deficit.

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Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.

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