There was talk about the U.S. government might be shutting down soon, and it actually happened. Now, that should affect gold price some way or another, directly or indirectly.
The U.S. government is in hiatus because the Senate rejected two amendments the House of Representatives concerning government spending passed. Both amendments involve Obamacare or the Affordable Care Act. Although this have nothing to do with gold directly, it might affect, at least psychologically, the gold market and industry all over the world. A significant portion of the gold trade is tied to the U.S. dollar and the U.S. market.
The U.S. Constitution allows such thing to happen. The Senate and the House of Representatives both needs to approve on an agreed budget for government spending, and then signed by the U.S. President. If the presidential office and one or both of the U.S. Congress chambers controlled by different political factions and they were unable to resolve the budget, the government cease to provide other than the essential services. Essential services are defined by the U.S. presidential Office of Management and Budget, saying exactly which government functions and services that will pause during the shutdown.
The U.S. experienced 2 shutdowns during President Clinton time; the first one lasted for just 5 days, from November 13 to November 19 in 1995, and the second one was the longest in the history of America since the 70s, lasting for 21 days from December 16, 1995 till January 6, 1996. It was an argument between the Congress and Clinton about the budget, and the president refused it resulting in a 5-days shutdown. After a deal and the government returned with 75% funding, it was shutdown once more for 21 days this time. Both parties made compromises and it was settled.
The current shutdown might continue for days, weeks, or even it might end tomorrow. It ends when the different parties agrees on a budget and make some compromises, which doesn’t look like it’s happening with the debt ceiling deadline issue drawing nearer and both parties blaming each other.
“History repeats itself” is a golden rule for technical analysts that can be applied generally to make a close guess for what’s going to happen next. The U.S. government shutdown before, so be revising what happened then, it’s possible to see the same course of action in gold price movements once again.
Before the first government shutdown in 1995, gold price was $389.40 per ounce two days before the U.S. government hiatus. On November 13, gold was traded around $388.30 and continue to decline during the 5 days to reach $386.35 per ounce. Gold price slid during this period close on November 17 at 386.35. After 4 days, gold rallied back to the price of $388.90 per ounce.
On the second government shutdown in late 1995, the price of one ounce of gold on December 14, 1995 was $385.70, and $386.20 on December 15. On the first market session during the shutdown, gold price was at $387.20, and almost stayed steady at an average of $387 per ounce. However, gold price rallied during the first days of January 1996 to reach $395.90 per ounce during the government shutdown. The price of gold then rallied in January 1996 to $406.60 per ounce, and was traded at an average of $397.50.
During the first short one, gold price weakened then rallied afterwards. However, during the longest shutdown in history of the U.S., gold price rallied strongly as there was more tension in this crisis, which is bullish for gold.
The circumstances of the gold market back then were different than now. It was already a high season of gold, during Christmas, and gold ETFs weren’t invented yet. After the gold ETF was launched, and several other fundamental changes in the financial market, the gold market price movements changed considerably for the next years.
Maybe we might see gold price movements similar to that period, and maybe gold will move in different manner. It’s uncertain now how gold price would move, and all we can do right now is to try figure out why the price move and hope for history to repeat itself.