Gold and the Government Shutdown

10/09/2013 12:00 pm EST


Jim Jubak

Founder and Editor,

MoneyShow's Jim Jubak discusses the reaction of gold prices to the government shutdown and what that may mean for the bottom in gold prices.

If you're an investor in gold or you trade gold, the government shutdown has had to be a disappointment to you. I mean, after all, if the US Government shuts down with a looming debt ceiling crisis and gold doesn't go up, what is it going to take to push gold up? One of the things that is happening here, I think, is you're seeing a reset of where the bottom might be. The consensus was that the bottom for gold was around $1200 an ounce.

Fitch came out, Fitch Ratings, one of the credit rating companies, came out and said, "Well, you know, given the fact that gold is not trading on commercial fundamentals or on actual demand, was trading as kind of a financial instrument, and given the fact that Central Bank seemed to be selling gold, or, at least, not accumulating it, maybe $1200 is not the bottom and we see a foundation at $1000."

They said the problem, of course, is that $1000, and the reason for that being a bottom is that, at $1000, a lot of gold companies are going to have trouble covering their costs and need to raise more money and they're probably going to get downgrades from Fitch and Moody's and S&P, so that's the environment that they see.

So, if you are looking at this and going, "Okay, where do I want to buy, because I like gold as a long-term hedge," what all this thinking has done is really to say, "Okay, $1200 is not the place you want to put in positions, maybe $1000, so positions like that, assumptions like that, predictions like that, tend to be self-fulfilling, since no one wants to buy at $1200 and then see that they could have bought better at a better price at $1000.

Right now, I think the question is wait and see. If current events, the debt ceiling crisis, Italy, whatever around the world, start to make gold look really attractive, I think you then have some possibility that you ought to buy gold now, but right now, since none of those things seem to be moving gold up in a concerted fashion, I think you ought to wait and see whether $1000 an ounce might be the new bottom for this part of the gold cycle.

This is Jim Jubak for the video network.

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