US Government Shuts Down. Will Gold Go Up?

Federal government shutdown drags into its fourth week. Will it boost gold prices?

US Government Shuts Down, Again

Could you imagine life without a government? Now, you can. The federal government has been shut down since December 22nd, 2018. The government shutdown does not, of course, imply that the whole government is closed. Only non-essential discretionary federal programs and agencies close. They include NASA, IRS, Department of Commerce, Department of Education, Department of Labor, Food and Drug Administration, etc.

The partial shutdown occurred because President Donald Trump and the United States did not agree on the appropriation of funds for the 2019 fiscal year. The bone of contention is Trump’s call for more than $5 billion for a U.S.-Mexico border wall. Democrats, who now control the House of Representatives, have rejected Trump’s demand, claiming that there are more effective ways of enhancing border security than building a wall costing more than $25 billion. They also point out that Trump promised during his campaign that Mexico would pay for the wall (however, its government has refused, what a surprise).

The shutdown of the US government is not something new. For example, it happened in January 2018 for three days, 2013 for 16 days in, or in 1995-1996 for 21 days. The current shutdown is the longest in the US history, lasting 25 days already.

Government Shutdown and US Economy

What the government shutdown imply for the US economy and the gold market? Well, it resulted in a lack of funding for nine executive departments, affecting about one-fourth of government activities with around 800,000 employees. Almost half of them have been furloughed, i.e. sent home without pay, while the rest of them have to work without a paycheck. More importantly, the shutdown also affects the pace of economic growth, as the government spending is a component of GDP. Indeed, the shutdown in 2013 reduced the GDP by 0.4 percent in the fourth quarter of 2013. On that basis, the J.P. Morgan economists have cut their first-quarter growth forecast by a quarter point to 2 percent. Gold should enjoy the economic slowdown.

1 2
View single page >> |

If you enjoyed the above analysis and would you like to know more about the most important macroeconomic factors influencing the U.S. dollar value and the price of gold, we invite you to read the ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.