October 15th Early Week Silver Market Update

For the first half of October, the main news story the precious metals industry has had to focus on is that of the ongoing partial US government shutdown. The shutdown, which went into effect on the first of the month, has resulted in over 800,000 government employees being without work for over 2 weeks now while the agencies and departments they work for have been and remain closed.

Now, investors are beginning to focus on another development also involving the US government. The debt ceiling, which is set to be reached in the next few days, is another problem Congress has to battle with.

What Does All This Mean for Precious Metals?

In the lead-up to the government shutdown, the dominant question investors had was how a shutdown would affect the precious metals market. Some felt that the disruption of a government shutdown would prompt an increase in safe-haven demand for gold while other believed that precious metals, along with most other markets, would decline in the wake of a stagnant US government.

We quickly found out that the latter was true as precious metals declined almost immediately after the shutdown became official. For the last two weeks now we have seen a fairly steady decline in the spot values of both gold and silver. While the prospect of a government shutdown might lead one to believe that investors would abandon stock and bond holdings in an effort to more safely guard their assets through precious metals, the fact that we have known about the possibility of a government shutdown for over a year means that the shock typically associated with this type of event was not seen in the least. On top of that, many investors are still convinced that Congress will formulate some sort of solution before the ongoing shutdown overlaps with the pending US debt ceiling being reached.

Still, with each passing hour, the possibility of the shutdown overlapping with the debt ceiling being reached is growing. If such an occurrence comes to fruition we may finally see the increase in safe-haven demand for precious metals that many expected more than half of a month ago.

Towards the end of last week it was reported that President Obama was in talks with Congressional leaders about the possibility of temporarily raising the debt ceiling in an effort to allow Congress to focus on the shutdown before tackling any other issues. Over the weekend those talks seemed to have broken down and on Tuesday we are no closer to raising the debt ceiling or seeing a viable budget than we were last week. Yesterday there were a few reports making their rounds saying that Democrats and Republicans in Congress were closer to reaching a budget resolution, though such news has not been officially confirmed.