Gold and silver have been victims of a rough past 14 days mostly thanks to the ongoing US government shutdown. Since Congress has been unable to come up with a workable budget, hundreds of thousands of government employees are without a way to support their families because their agencies have been closed. During that same time, most markets have declined just like precious metals and there is no real end in sight.

Now, investors have to tussle with the idea of the US debt ceiling being reached, an event which will see the US begin to default on its loan obligations. Such an occurrence has the ability to take the world marketplace from a feeling of anxiousness into full-fledged panic.

Shutdown, Debt Ceiling and Their Impact on Precious Metals

Before the government shutdown went into effect, many investors wondered what a shutdown would mean for precious metals. What ended up happening was that we saw a sharp decline in silver and gold spot values, a decline that is continuing today. Though a government shutdown may seem like the type of situation that would send the worldwide economic marketplace into panic, the fact that we have known about the possibility of a shutdown for such an extended period of time means that no one was really shocked when the shutdown occurred. Because we haven’t witnessed investor panic combined with the fact that we have been more or less expecting a government shutdown means that an increase in safe-haven demand was never too likely.

A month ago, the likelihood of a government shutdown occurring at the point when the US reached its debt ceiling was very low. Now, with the shutdown having been in full force since the first of October the likelihood we will see the debt ceiling and budget crisis overlap is growing rapidly. If the two events do happen simultaneously, the increase in safe-haven demand that many investors have been craving may finally be realized.

Despite all of that, there is a widely held belief that Congress will either reach an agreement on the budget or temporarily raise the debt ceiling before the two events overlap. Towards the end of last week there was news of President Obama and Congressional leaders discussing the possibility of temporarily raising the debt ceiling so that Congress can place its full attention on the budget, figure that situation out, and then proceed to the debt ceiling issue. During the latter parts of this week is when we will begin to have a clearer image of just what Congress intends to do about the budget crisis and the debt ceiling.