Gold at one-week high on budget impasse

Gold rose to a one-week high and is headed for its first quarterly advance in a year as uncertainty whether the Senate will pass a budget for the 2014 fiscal year stoked safe haven demand for the metal. Silver and palladium marked minor declines, while platinum advanced.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December rose by 0.10% to $1 340.50 per troy ounce at 8:03 GMT. Prices held in range between days low of $1 335.90 and high at $1 350.30, the strongest level since September 20. The precious metal rose by nearly 1% on Friday, settling the week 0.8% higher, and is headed for its first quarterly advance in a year, up 8.6% in the three months ending today.

Gold extended its advance as the possibility for a first government shutdown in 17 years in the U.S. spurred safe haven demand. The House of Representatives voted on Sunday to stop many of the central provisions of the Affordable Care Act for a year, the so-called Obamacare, and tied it to an extension of government funding. Meanwhile, both the White House and the Democratic-controlled Senate said they will not support any budget that defunds or amends the act.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “The uncertainty of what potentially could happen with the U.S. government shutting down is putting a little bit of premium into the price. But we had seen this before, where the deal was done close to the rollover date, and we expect the same thing to happen.”

If the bill gets rejected today, the government could be shut starting tomorrow. This could cut the U.S. fourth-quarter economic growth by as much as 1.4% due to the lost output from furloughed workers, while essential operations and dedicated funded programs will continue.

Separately, lawmakers must vote to raise the country’s borrowing ceiling. Treasury Secretary Jacob Lew said that measures to avoid exceeding the debt limit will be exhausted by October 17.

Gold received a strong boost on Friday after Federal Reserve Bank of Chicago President Charles Evans said that the central bank needs more signs of strength in the economy to pare its bond purchases.

“The economic outlook strikes me as compatible with reducing the flow of purchase rate,” he said to reporters in Oslo today. “But whether or not well have enough confidence at the October meeting or the December meeting, I just cant say that with a lot of certainty. A lot of developments are still under way. At the moment the data doesn’t provide us with confidence to make major adjustments.”

A Bloomberg survey of analysts conducted after Feds surprising decision to leave its monetary easing program intact in September showed that 24 of 41 economists polled expected the central bank to begin decelerating its monetary stimulus in December.

Gains on Monday however remained limited as the U.S. dollar remained strong against a weak euro which retreated after Silvio Berlusconi announced on Saturday that he is pulling out his ministers from Prime Minister Enrico Letta’s coalition government and called for new elections to be held.

The dollar index, which measures the greenbacks performance against a basket of six major counterparts traded at 80.39 at 8:03 GMT, up 0.04% on the day. The December contract held in a narrow range between days high and low of 80.47 and 80.35. The U.S. currency gauge slipped 0.3% on Friday and settled the week 0.2% lower after losing 2% in the preceding two five-day periods.