The clock is ticking down to a likely US government shutdown in late September. At the same time, gold prices remain deeply overbought, suggesting we are overdue for some market turbulence. Analysts warn that the same precious metal is dangerously close to a key tipping point. When these values increase past 70, it indicates overbought territory. Yet another shutdown looms with negotiations between President Trump and Congressional leaders having fallen apart. This lack of clarity is a dangerous cocktail for the economy and investment climate.
We have fewer than 15 hours left for Congress to find a resolution on funding, so the tension is extremely high. If a resolution does not materialize, this would be the 14th shutdown in US history. Investors are right to be panicking. Alarmingly, 69.80% of retail investor accounts lose money trading Contracts for Difference (CFDs) with this provider.
Economic Implications of a Shutdown
The shutdown would be an unprecedented blow to the already weakened US economy. Fitch Solutions analysts recently cautioned that for every week of federal inaction, the quarterly GDP could decrease by 0.1% to 0.3%. If the shutdown takes longer than projected, this decline could compound very soon. Additionally, it will hit hard on several industries that rely on government services.
Despite all these potential threats on the horizon, the unemployment rate is projected to hold firm at 4.3%. New data indicating a loosening labor market has us sweating again. Meanwhile, the coming addition of 39,000 extra civilian jobs would seem to further complicate the economic landscape. US employment data set to be released on Friday will be of keen interest to economists and investors. To support these investments, they are looking for indicators of long-term economic viability.
“I think we are headed to a shutdown because the Democrats won’t do the right thing.” – Vice President Vance
This no-quarter-giving statement from Vice President Vance perfectly illustrates the charged political atmosphere surrounding the funding fights. So far, the Democrats’ leadership has turned down the short-term deal Republicans have offered. This looming standoff would produce dire economic ramifications.
Gold’s Market Dynamics
The looming government shutdown has been one of the catalysts pushing up the price of gold. With economic uncertainty at an all-time high, investors are rushing towards safe-haven assets. Indeed, analysts have pointed to a smokescreen of minor advances toward an elusive government funding deal. To that end, they expect gold prices to keep going up. The current overbought status of the market can allow for easier corrections if investors start to overreact to negative external economic indicators.
Gold is often perceived as a refuge in periods of economic turmoil. As worries grow over a potential government shutdown, investors can expect to flock to this precious metal for safety. All this political strife, paired with potential economic downturns, makes for an environment that is ripe for fluctuations in gold pricing.
Technical Analysis and Future Outlook
As market analysts take a technical approach to analyzing gold’s daily chart, they look at things like resistance levels and overall market sentiment. Overbought condition indicates heightened buying pressure. If market fundamentals were to shift abruptly, a reckoning may be near.
The US government shutdown on the horizon makes these analyses even more complicated. During these uncertain times, investors are keen on finding a crystal ball-like pattern or signal within the charts to help them strategically plan their next moves. If the government doesn’t reopen soon, gold’s appeal as a safe haven will increase, sparking additional investment.