While some anticipate that a partial government shutdown ahead has diminished with the announced resignation of House Speaker John Boehner, safe-haven gold assets and related exchange traded funds could enjoy a short-term bounce if a deal does not go through.
“If we do have a shutdown … the gold bugs are going to come out to work here,” Phillip Streible, senior market strategist at RJO Futures, told CNBC.
Investors can also track gold price movements through gold-backed ETFs, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL). The gold ETFs gained about 0.6% over the past week but have declined a little over 3% year-to-date.
Streible argues that safe-haven assets, like gold, will receive a boost if the government is shutdown.
When a shutdown occurs, “people go without paychecks, uncertainty is risen, and everybody gets a little less confident in the federal government – no matter how unconfident they may have started out,” Max Wolff of Manhattan Venture Partners told CNBC.
Congress will be voting to approve new funding for federal agencies on September 30.
Comex gold futures ended around $1,131.5 per ounce Monday. Streible pointed out that gold could be worth a look once it breaks above its $1,151 resistance. Afterward, “we’ll probably push on up to about the 200-day moving average at $1,174,” Streible added.
However, a rally may not last.
“Right around then, coming into the end of the week, we probably see the resolution being done, and gold will probably come off from that,” Streible warned.
Moverover, looking at the medium-term, the Federal Reserve outlook will keep pressure on gold. The Fed has stated that higher interest rates are coming this year, and the rate hike diminish the appeal of a non-yield-paying asset like gold. Moreover, a stronger dollar would also weigh on the value of holding bullion.
“The ingredients you need for a recipe for higher gold prices are just not there today,” Walter “Bucky” Hellwig, senior vice president at BB&T Wealth Management, told Bloomberg. “Yellen’s statement that they’re going to probably raise rates by year-end implies a stronger dollar, which isn’t favorable for gold.”
Commodity traders who would like to hedge against a potential dip in gold prices could utilize inverse gold ETFs. For example, the ProShares UltraShort Gold (NYSEArca: GLL) provides a two times inverse, or -200%, daily performance of gold bullion. The Direxion Daily Gold Bear 3X Shares (NYSEArca: BARS) reflects the daily -300% daily performance of gold.
Alternatively, ETN options include the DB Gold Double Short ETN (NYSEArca: DZZ), which tries to generate the twice inverse, or -200%, return of the daily performance of gold, DB Gold Short ETN (NYSEArca: DGZ), which tries to reflect the inverse of gold price movements, and VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD), which tries to reflect the performance of three times the inverse, or -300%, daily performance.
SPDR Gold Shares
For more information on the gold bullion, visit our gold category.
Max Chen contributed to this article.