HSBC Outlines U.S. Debt-Ceiling Scenarios, Potential Impact On Gold
Wednesday October 16, 2013 7:29 AM
HSBC outlines three scenarios stemming from the U.S. debt ceiling talks and their potential impact on gold. “The first scenario…is a ‘grand bargain’ between Democrats and Republicans which would have an immediate positive effect on business and consumer confidence and could also lead to an earlier end to the Fed’s QE (quantitative easing) program,” HSBC says. “Given receding political uncertainty, this scenario would be negative for gold in the short term, as it would ease investor demand for a safe-haven asset. The second is a ‘muddle through’ scenario in which funding is provided for government activity in the near term and the Treasury’s debt ceiling date is pushed back for a few weeks or a few months….This would be the base-case scenario and one which the markets are currently pricing in….A ‘muddle through’ scenario would be slightly negative to neutral for gold, we believe, as it would also ease political uncertainty, but this has largely been priced into the bullion market with prices near the three-month intraday low of USD1,250/oz. According to the team, the third (and least likely) scenario is the ‘default,’ which could lead to a recession with the Fed likely to continue with QE and possibly increasing asset purchases to stabilize financial markets. A ‘default’ scenario would be bullish for gold, in our view.”