US govt shutdown: Gold surges, rupee gains; what next?

Spot gold prices pushed higher on Tuesday morning after US lawmakers missed their midnight deadline to strike a deal over the budget, culminating in a partial shutdown for the US government for the first time in 17 years.

The US dollar immediately became the least favoured asset class in commodities and forex markets, and gold price rose to $1,336 per troy ounce this morning, up by more than half a percentage point over yesterday’s close.

Spot silver prices too were up by about 0.7 per cent over yesterday, and the white metal was trading at $21.83 per ounce in early trade today.

The Indian rupee, on the other hand, gained more than 1 per cent this morning and was trading at Rs16.92 against Dh1 at about 12 noon UAE time (8am GMT) as the US dollar landed in a no-man’s land after the official shutdown of the US government.

The dollar index is now trending close to a seven-and-a-half-month low against a basket of global currencies.

Safe haven assets such as gold tend to gain when the US dollar falters but the fact that the yellow metal failed to rally this morning suggests that once the US lawmakers agree on the resolution of the current crisis, bullion is set to witness some erosion in value.

Moreover, once this political standoff is overcome, the US federal Reserve will once again look into the issue of tapering off the $85bn quantitative easing programme at some point, setting the stage for another pullout from ‘safe haven’ asset classes including precious metals and emerging market equities.

What’s next: The coming 24 hours

Most global stock markets are expected to be jittery at best as the world watches with interest as US lawmakers bicker over the budget and who is responsible for the current state of affairs.

The Dubai Financial Market (DFM) general index stood at 2,772.73 points at about 12.15pm this afternoon, up by 10 points (0.37 per cent) over yesterday’s close. India’s benchmark BSE Sensex was up 100 points (0.52 per cent), at 19,480 points at the same time.

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