The FOMC May Need To Add Stimulus To Offset Shutdown

      For weeks traders have talked “tapering”. They were almost sure it would have begun last month, now they were expecting big news this month. Others were saying by the end of the year. But everyone was sure tapering would begin soon. That was until the impossible happened. The US government has shut down. Most speculators figured US politicians were playing theatrics and would come up with a last minute agreement as they do all the time but this time they seem to have out maneuvered themselves. Putting themselves in a bind. The noose is now tightening as the budget crisis becomes ensnared with the debt ceiling negotiations.

The Federal Reserve is not funded by the budget and will therefore remain operational, which means that we will continue to hear from Fed speakers. Yesterday, traders were shaken when a Fed member suggested that the FOMC might need to add additional stimulus to help the government recover from the economic damage caused by the shutdown.  Caught in the middle of this confusion are precious metals. Gold and silver have been trading all over the place. Gold is trading at 1312.00 down by $8.70 this morning. Gold climbed over the 1320 level yesterday as traders took advantage of the steep decline on Monday and the weak US dollar to buy up the commodity.

The most actively traded contract, for December delivery, on Wednesday settled up $34.60, or 2.7 per cent, at $1,320.70. The US federal government closure moved into a second day as Democrats and Republicans remained deadlocked over a budget for the fiscal year, which started on October 1. Some investors are now worried that the shutdown will last longer than expected, leading to terser negotiations over the US debt ceiling in mid-October. Gold traded near two-month lows on Wednesday as the first US government shutdown in 17 years kept investors on edge, stoking worries of further liquidation after a sharp 3 percent drop in the previous session. Bullion posted its biggest daily percentage drop in more than two weeks on Tuesday following a massive Comex sell order and technical selling once prices fell below $1,300 an ounce. For the year, gold has shed about 23 percent of its value largely on fears over a US stimulus cutback. Gold’s safe-haven appeal is usually burnished by uncertain economy and geopolitical tensions. Prolonged politicking around the US budget had initially prompted hopes that gold prices could rise, but safe-haven bids failed to emerge.

Taking cues from rise in gold prices along with upside in base metals group, silver prices gained around 2.8 percent yesterday. Further, weakness in the DX acted as a positive factor. Silver is trading at 21.725 down by 172 points this morning. Copper gained 1.3 percent in the last trade due to positive economic outlook from Eurozone, which could lead to increased demand for the red metal. Decline in inventories by 0.3 percent to 531,875 tonnes along with weakness in the DX also supported gains. However, weak market sentiments capped sharp gains in the prices. The metal is trading at 3.311 flat this morning. - Fxempire.com