Gold prices in 2013 haven't performed as well as the previous few years - but Washington continues to give us plenty of reasons to buy the yellow metal.
This week showed us how sensitive the price of gold can be to news from Washington.
On the heels on the down-to-the-wire U.S. government budget and debt ceiling deal, gold prices moved abruptly higher and soared above the key $1,300 level.
In afternoon trading Thursday, spot gold was up 3.17 %, or $40.70, at $1,324.40.
Reasons for gold's sharp gains Thursday:
- The realization that the government deal simply "kicks the can" down the road yet again. Under the terms of the Senate deal, the government will only be funded through Jan. 15 and the debt ceiling debate comes up again Feb. 7.
- Chinese credit rating agency Dagong Global Credit Rating trimmed its rating of the U.S. one notch to A- from A. The agency said the agreement in Washington does not defuse worries about the U.S deficit or improve the country's ability to repay in the long term.
- The government shutdown shaved a half-percentage point off U.S. Q4 GDP and also delayed a number of key economic data reports. That makes it highly likely the Federal Reserve will pause on any tapering plans until at least late in Q1 of 2014.
- Heavy short covering.
- A lower U.S. dollar index.
All this is a sign of how valuable investing in gold is when the U.S. government's budget battles spill over into markets - which will continue to happen as Congress "kicks the can down the road."
This will trigger even more gold buying than October has already seen...
Gold Coin Sales Soar in 2013
Gold coins remain a popular investment in 2013.
Demand for the popular American Eagle coins has soared to date in October after months of waning sales. The recent robust buying is thanks to bargain hunters who took advantage of the dip in prices as the yellow metal retreated below $1,300 an ounce.
As of Tuesday, the U.S. Mint reported it has sold 10,000 ounces of its most popular American Eagle gold coins. That bought total sales for the month up to 22,000 ounces, a Mint spokesperson confirmed to Reuters.
With some two weeks left, October sales are already the highest in three months. Sales are almost double September's total sales of 13,000 ounces and August's tally of 11,500 ounces.
"Gold Eagle sales are up 400% compared to September," Jake Haugen, vice president of sales for Texas-based Provident Metals, told Money Morning. "October has been a great month for investors to take advantage of lower spot prices."
Indeed, the yellow metal has endured several punishing months. Gold is off 23.45% year to date, down 26.81% over the last 12 months, and well off its all-time high of $1,921 touched in September 2011.
Gold prices have been further pressured since June, when U.S. Federal Reserve Chairman Ben Bernanke hinted the central bank might start tapering its $85 billon a month bond-buying program. Such a move, traders say, would shore up the dollar and weigh on gold.
But with the U.S. government destined to raise the debt ceiling again in a few months, the price of gold will again rise as global faith in the dollar slips.
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