To The Moon

The U.S. government has once again fallen into a shutdown, with no signs of resolution so far. Market expectations estimate the shutdown will last between 15 to 29 days. Although this is not the first shutdown the U.S. government has faced, the market remains relatively calm for now. However, the shutdown delays the release of many critical economic data, preventing the Federal Reserve from making informed policy decisions based on the latest economic indicators. This uncertainty clouds the path toward interest rate cuts, leaving the market to continue operating along the current trend.

Impact of the Shutdown on U.S. Stock Indexes

The longer the shutdown lasts, the more significant the damage to the U.S. economy will be. This is almost unimaginable in China, given the much broader government functions there. In contrast, the U.S. government has a relatively smaller scope of responsibilities, so the adverse effects take time to materialize. What sets this shutdown apart from previous ones is former President Trump's threat to dismiss affected government employees, which will undoubtedly exacerbate the unemployment rate that has already started to rise. During the pandemic, the U.S. government hired many employees to boost employment, a policy that continued under President Biden’s administration. After Trump took office, his policy aimed to streamline government processes; for instance, the establishment of the Efficiency Department (DOGE) aimed to implement such goals, but it was dissolved due to strong resistance. Now, Trump may be using the government shutdown as an opportunity to carry out large-scale layoffs in line with his earlier policy goals. Consequently, unemployment is likely to rise following the shutdown, which will weaken the U.S. stock indexes.

Continued Rise in Risk Appetite for Precious Metals Amid Shutdown

Under the influence of only positive factors and no adverse news, New York gold continues to reach new highs, with a breakthrough past 4000 looking imminent. The current bullish factors affecting precious metals—such as interest rate cuts and geopolitical conflicts—show no signs of abating, and there are no bearish factors to counterbalance them. As a result, the precious metals market is prone to accelerated short squeezes, followed by significant corrections. These movements lack distinct technical features and are driven mainly by market sentiment, causing large fluctuations that are best traded on a short-term basis.

It is worth noting that the gold-to-silver ratio has recently narrowed sharply. Silver’s substantial rise currently lacks strong fundamental support, and due to its relatively high inventory, central banks are unlikely to hoard silver as a reserve currency. Therefore, silver’s rise is often viewed as a final speculative market sentiment. If silver sharply outperforms gold independently, caution is warranted for a potential market correction. In recent years, when the gold-to-silver ratio narrows to around 75 (calculated by dividing New York gold price by New York silver price), it is often followed by an expansion of the ratio. Typically, an expanding ratio occurs during a broader downturn in precious metals. Thus, attention to this indicator may provide an early signal of a reversal in the precious metals market.

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