The government shutdown may be over, but there are still repercussions being felt in the precious metals market. Here are a few highlights as the market moves into next week.
Momentum from the Fallout of the Government Shutdown
There are a lot of numbers being thrown around as to how much the government shutdown actually cost the U.S. economy. One number that most experts tend to agree on is the loss of $24 billion in economic output – about 0.6% of the projected annualized GDP. Any sign that the economy is performing poorly does not look good for tapering the ongoing stimulus program. The longer this is pushed off, the better off gold will be.
Lackluster Economic Job Data
Deutsche Bank analyst Michael Lewis says “The weak employment numbers are probably pushing the consensus on QE tapering towards March next year. That suggests a weaker dollar and an environment where long-term real yields will be edging lower again. Both of these would be supportive for gold.” Overall, the weak employment numbers will keep the Federal Reserve devaluing the dollar to the tune of $85 billion a month, which gives investors more reason to protect their wealth with safe-haven investments such as gold.
Demand for Physical Bullion
Since the major dip in the price of gold about five months ago, demand for physical bullion has increased substantially. So much so, in fact, that the U.S. Mint has had trouble keeping up with it. As it stands now, the sales of American Eagle gold coins are on track for one of the best months since July. Depending on how the month rounds out, this increased physical demand may have a beneficial effect for gold.
Anticipation of the Diwali Festival
Wedding and festival season is fast approaching in India, the world leader in gold demand. It should be noted that there has been an increased import duty on gold and the addition of even more complicated import rules that make it difficult to import the yellow metal. Nonetheless, weddings will happen and festivals must go on. It would not be surprising to see demand from India ramping up soon.