Gold price gains over fears US political crisis could turn into 'financial apocalypse'

Gold gains as shutdown, debt ceiling worries mountThe gold price on Monday gained $15 an ounce or just over 1% as the metal continues to build a base around the $1,320 level amid a falling stock market and deepening worries about the political crisis in the US.

The lack of progress in the US to end the partial government shutdown and indications that the fight over President Obama's healthcare program could become part of the country's debt ceiling negotiations have benefited gold as a safe haven asset.

But gold's hard asset qualities have not attracted investors to the extent that most  market observers expected.

Gold remains slightly below the levels it traded at on September 30, the day before the shutdown began, but as 17 October, D-Day for lifting the US debt ceiling, approaches the metal should see increasing safe haven buying.

The Wall Street Journal quotes  Bill Baruch, a senior market strategist with Chicago-based futures brokerage iiTrader, as saying the gains for gold remain muted because "few in the market believe lawmakers won't reach an accord on time":

"You're seeing some fear supporting gold now, but gold is still in a down market," Mr. Baruch said.

The gold price is down 20% this year and without a strong catalyst to move higher is set to end its 13-year unbroken bull run.

default by the US on its $12 trillion in debts could be just such a catalyst.

Among the dozens of money managers, economists, bankers, traders and former government officials Bloomberg interviewed Monday few view a US default as "anything but a financial apocalypse":

Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression.

Spot gold reached a high of $1,909 on August 23, 2011. Earlier that month many of the same US Congress members that are now deadlocked reached a deal on raising the debt ceiling. But that did not prevent the US from suffering the first ever downgrade of its government bonds.

Image by Adam Fagen