Gold's $40 drubbing

Gold sank 3% to $1,289 on a day when the United States government shut down – the first time in 17 years.

Analysts are scrambling to make sense of the collapse, citing a range of factors including:

  • Disappointment that the Oct. 1 debt deadline didn't create a rush of safe haven investors
  • An abnormally large, institutional Comex sell order early on Tuesday that sent gold south $25
  • Technical vulnerability once $1,300 had been broken
  • China's 'Golden Week' national holiday diminishing Asian demand from Oct. 1 – 9
  • Potentially deflationary headwinds in the event of a prolonged shutdown and/or default.

The day ended with a chorus of bearish calls, with ratings agency Fitch claiming that a gold rebound is unlikely and that there is no $1,200/oz floor – an idea supported by, among others, the Thomson Reuters gold survey.

Traders will keep a close eye on Washington's political brinkmanship that could ultimately lead the United States to default on its debt obligations on October 17. Failure of Congress to reach a budget deal before then could send the US economy back into recession.

US debt-ceiling drama sent gold to a record high of $1,920/oz in September of 2011.