Various recent global economic and political events such as the 16-day U.S. government shutdown have had an impact on the prices of gold and silver in both the U.S. and global markets. The instability in the U.S. and the possibility of a debt default made many markets jittery. Many investors have turned to gold and silver as a hedge and safe haven. Another factor that will impact the price of gold and silver in the U.S. is the increasing expectation that the fed will delay the tapering of the stimulus.
As such silver prices in the February series are up by 20% so far according to Reuters while gold futures for December delivery were up 0.5%.
America is just Hurting Itself
Apart from the local U.S. factors that are making the precious metals appreciate, global indicators too are favoring them. The 16-day U.S. government shutdown has prompted China to call for an alternative global currency instead of the U.S. dollar. This has dampened the greenback.
China and Gold
Additionally, the two countries that import the maximum amount of gold in the world – India and China have not seen any lowering of demand. The World Gold Council was expecting gold imports in India to rise to 1,000 tons but Indian government regulations are likely to make China the major importer of gold this year.
An Infatuation with Gold
The Indian government has imposed restrictions in the import of gold, hiked import duty on gold, and made it mandatory for importers to export 20% of the gold they import as jewelry. However, this has not reduced demand for the yellow metal in India and the premium for gold in the country is now $100 per troy ounce and expected to reach $150 per ounce soon. Even gold obtained through unofficial channels – or smuggled gold – commands a premium of $50 per ounce in India.
With global economic uncertainty persisting, China’s call for a new global reserve currency, India’s economic woes, and the traditional value that Indians place on gold and silver are all expected to combine to make gold more expensive in the near future.
Many investment advisors continue to advise clients to invest in gold and silver as a hedge against inflation and currency fluctuations. They reason that the purchasing power of gold or silver has remained consistent over the years even when the value of the currency or of other products has fluctuated.
Apart from these factors, the latest U.S. data on the economy are also being awaited since this will reveal the possible direction of the Fed’s asset purchase program. This data has been delayed because of the government shutdown, and any indication of a slowdown in recovery will likely be interpreted as a sign that the Fed will continue its bond purchases. This will lead to a further rise in gold and silver prices in the Comex.
A Stark but Apparent Difference
As the shutdown has delayed various government programs such as disbursal of home loans, there is every likelihood of the latest economic data being weak, leading to a rise in the prices of bullion. But many people know the economy is weak because of poor federal leadership, excessive regulations, and high taxes. The economies in California are faltering because of those 3 reasons (well, poor state leadership) while the ones in Texas are thriving because they have not gone down that same road.