Debt-Ceiling Deal Sees Gold Slip After Biggest GLD ETF Inflow in 3 Years
Monday, 12/23/2024 15:18
The PRICE of GOLD fell back from earlier gains on Monday as the US Dollar rose toward a new 2-year high after politicians in Washington agreed a deal late Friday to avoid a government shutdown because of the United States' debt ceiling,
writes Atsuko Whitehouse at BullionVault.
Friday's debt-ceiling countdown ahead of the deal saw the giant GLD gold-backed ETF enjoy its heaviest 1-day inflow of investment funds since the eve of
Russia invading Ukraine in early 2022.
"Get rid of, or extend out to perhaps 2029, the ridiculous debt ceiling," said US President-elect Donald Trump on his Truth Social platform.
By Monday lunchtime in London, spot gold prices edged 0.3% lower from the weekend to trade at $2615 per Troy ounce.
Down by $175 from
Halloween's all-time gold price high, that was still $30 above last Wednesday's 1-month low, hit when the US Federal Reserve cut Dollar interest rates as expected but
halved its forecast for further rate cuts in 2025.
With the cost of paying the interest on Washington's debt
now overtaking federal spending on defense, Friday midnight saw the US Senate pass a temporary funding measure, averting a "government shutdown" – when the State's inability to borrow more money means some services and payments are closed – until mid-March.
Between 2013 and 2023, politicians agreed to raise the US debt ceiling from $16.7 trillion to $31.4 trillion.
The last and longest federal shutdown – lasting 35 days in December 2018 – came during Trump's first term as President, when Republicans and Democrats couldn't agree a 2019 fiscal budget.
Another stand-off between Republicans and Democrats then saw current President Joe Biden's Fiscal Responsibility Act suspend the ceiling until New Year's Day 2025.
Trump's pre-election tax and spending plans – if implemented during his second term –
could add another $7.5 trillion to the federal debt by lowering individual and corporate taxes, imposing heavy tariffs on imports, and deporting millions of immigrants.
"A hawkish (and confused) Fed, combined with Trump's ongoing tariff threats, is creating more uncertainty into year-end, driving the US Dollar seasonally to its strongest handle in 20 years," says Nicky Shiels, head of metals strategy at Swiss bullion refining and finance group MKS Pamp.
The Dollar index – a measure of the US currency's value versus its major peers – rose 0.5% on Monday, reaching levels last seen in May 2022.
"That short-term Dollar shortage will drive illiquidity and more volatility," Shiels adds.
"Gold and silver don't perform well in illiquid macro markets, particularly in a strong Dollar environment, and are likely to trade defensively."
Among
gold-backed ETFs, however, the giant SPDR Gold Trust (NYSEArca: GLD) expanded nearly 2% on Friday, marking its largest 1-day inflow in nearly 3 years as the minutes ticked down to the government shutdown deadline, averted by Congress's last-minute deal.
The world's second-largest gold ETF, the iShares Gold Trust (NYSEArca: IAU), remained unchanged in size Friday. But iShares' Silver Trust (SLV) grew by 1.3%, its biggest daily growth in 3 months.
That, however, followed the largest weekly outflow in 8 months recorded the previous week.
Prices for silver, which finds nearly 60% of its annual demand from industrial uses, rose 0.3% on Monday to $29.60 per Troy ounce, recovering 85 cents from last Thursday's 3-month low.
Gold priced in Euros held steady at €2516 per ounce, while the UK gold price edged 0.2% higher to around £2090 per ounce as the Pound weakened on the FX market on a revised estimate for UK economic growth which said GDP flat-lined in the third quarter of the year.
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