Gold, oil and government shutdowns SAN FRANCISCO

Gold , oil and government shutdowns
SAN FRANCISCO (MarketWatch) — History, at least when it comes to gold, oil and U.S. government crises, may surprise you.

The federal government is facing a shutdown next week but that doesn’t automatically mean that oil prices will take a hit from the weaker economic environment that implies, or that gold will get a safe-haven boost from the uncertainty it creates.

In fact, in the weeks ahead of the last government shutdown from December 16, 1995 to January 6, 1996, oil prices (NMN:CLX3) generally climbed. Gold prices (CNS:GCZ3) zigzagged before falling just days ahead of the actual shutdown.

And given the recent moves in gold and oil, it appears that traders in these markets barely even care about the risk of reduced government services, or even potential debt default.

As of Thursday, both gold and oil prices were set to end the week lower. Month to date, gold is down about 5% and oil has lost roughly 4%. At least part of those declines are attributable to expectations that the U.S. Federal Reserve will eventually taper its bond-buying program, even though it unexpectedly didn’t at its meeting earlier this month.

“There is a fascinating display of emotional burnout relative to U.S. budget and debt-ceiling fights,” said Jonathan Citrin, founder and executive chairman at CitrinGroup, an investment advisory firm. “Both gold and oil now seem to shrug off the majority of fears in the shadow of yet another round of bickering in the nation’s capital.”

If the U.S. government doesn’t come up with a budget deal by the Oct. 1 start of the new fiscal year, it may face a partial shutdown. And Treasury Secretary Jacob Lew has said that emergency steps to keep the government from hitting the debt ceiling will run out on Oct. 17.

“The political debate in Washington has become exasperatingly silly, ridiculous even, with gold and oil traders showing a similar opinion,” said Citrin.

U.S. President Barack Obama has said he won’t negotiate with Republicans over raising the debt limit but House Speaker John Boehner said the president has no choice.

Many traders “are making the assumption that an eleventh-hour deal will be reached, as always,” Citrin said. http://www.marketwatch.com/story/gold-oil-and...2013-09-27