If the U.S. Congress does not pass a bill before April 28, the government will run out of money. What would this mean for the gold market?
The specter of a government shutdown is haunting the U.S. again. The deadline is set for April 28. Without the funding bill presented to the President before Friday, the government would not be authorized to pay its bills and a shutdown would begin.
A government shutdown could be positive for the gold market. It would be a signal of political division in Washington and Trump’s ineffectiveness. If there is a problem even with funding the government when Republicans control the Congress, the implementation of the much more complex Trump’s pro-growth agenda would be under question.
As a reminder, the official debt-ceiling deadline of March 15 has already passed. The Treasury has already implement ‘emergency measures’ to remain under the debt limit, but these steps would be enough only in the short term. At some point in the near future, a major squeeze may happen. The potential crisis should hurt the U.S. dollar and support gold prices.
The take-home message is that we avoided a U.S. government shutdown last year, but the prospect of the government running out of money looms this year again. The policymakers may postpone the deadline, but they will merely buy some time and the issue will return to the agenda soon. If Republicans fail to solve such a mundane problem, the prospect of much more complex tax reform will be reduced – actually, it could be the final blow to the Trump rally. Political optimism could vanish further, while the greenback should weaken, which should support the price of gold. As a reminder, the debt-ceiling crisis of 2011 was positive for the yellow metal. On the other hand, the government shutdown in 2013 did not provide a boost for gold prices. Actually, there were several government shutdowns in the U.S. history and the country has not collapsed. Hence, any potential impact on gold should be limited and short-term. Anyway, this week may be a hot period for the gold market. Stay tuned!
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.