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Flight to Gold

Stocks in this article: SLV GLD TLT

I wrote back on September 23, in my article "Gold...Silver...The Fed...Oh My", that both gold and silver would continue to find themselves under pressure as an eventual taper by the Fed was certainly in the cards. This pressure has continued even with the recent dysfunction on Capitol Hill, which one would assume would lead to higher prices in the metals. While I still believe that a taper is in the works, I also believe that the bickering on Capitol Hill has delayed the timeframe until early 2014 at the absolute earliest. With that said, the longer that the government is shutdown and debt ceiling discussions carry on, the more room that both gold and silver have to the upside. Leading me to think that a retest of 1400 is not out of the question ( a little over a 5% move from current levels).

Today we had evidence of this as we entered the second week of trading with the government shutdown and no resolution to the pending debt ceiling deadline. For the first time in 3 sessions we saw the December Gold futures contract close higher, settling at 1325.10, up over 1% on the day. A similar move was experienced in silver with the December futures contract settling nearly 3% higher at 22.386.

The bottom line here is that as long as negotiations in Washington DC cease to exist and we creep closer to what many fear may result in a default on US debt, we will likely see a continued "flight to safety" into the metals. And while treasuries usually participate in this flight, I would be hard pressed to believe that will be the case this go round, at least not in what I would qualify as a substantial way. Keep in mind that Moody's downgraded our US debt in 2011, 4 days after we voted to lift the debt ceiling. History might just repeat itself, as there is speculation that Standard in Poor's has the current AAA rating in its crosshairs. With "downgrade" flashing before the eyes of investors, there might be hesitancy to push into treasuries, leaving more room for upside in gold and silver.

Travis McGhee


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