Gold ETFs were battered on Tuesday as risk-averse traders moved their money into more stable investments. The SPDR Gold Trust ($GLD) lost over 3 percent, the iShares Gold Trust ($IAU) was off almost 3.2 percent, and ETFS Physical Swiss Gold Shares (SGOL) was also down over 3 percent. Driving the falling value of the ETFs was the declining price of gold, with the spot price down more than $40 an ounce, over 3 percent, and futures contracts for December 13 delivers declining about 3.2 percent.
Risk Aversion Pushes Price of Gold Down
While the pending government shut-down did prompt a brief climb in price in off-market trading, traders demonstrated that they weren’t looking to gold as a safe haven on Tuesday morning. The prospects of a government shut-down weakening the dollar weren’t compelling enough to push investors into the commodity. Instead, a combination of risk-off behavior and anticipation of the Federal Reserve tapering their monthly bond-buying practice in coming months led to a sharp decline in the value of gold. Others also saw the lack of government activity, and deficit spending, as driving up the value of the dollar.
“Gold is selling off sharply with a lack of safe-haven demand in the short run,” said H.C. Wainwright managing director Jeffrey Wright. “Part of the reason for the deflationary sentiment is the federal government is not expanding the deficit during the partial shutdown.”
For investors and traders watching gold prices, the bigger question is what will happen in two weeks with the debate over the debt ceiling, with Wright observing that “bigger battle comes in two weeks with the debt ceiling. No deal on the debt ceiling will lead to safe-haven demand from all quarters and should cause a run on the U.S. dollar.”
“The event that will have the desired impact for the bulls is now 17 days away, when the fight draws to a climax on the debt-ceiling negotiations,” said Kitco Metals’ Peter Hug. “If they blow this one, the work accomplished over the past few years will be for naught.”
Price of Silver Also Declines
Silver ETFs were also falling along with silver prices, which fell slighter faster than gold. The iShares Silver Trust ($SLV) dropped over 2.5 percent and the ETFS Silver Trust ($SIVR) was off just under 2.75 percent.
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