Gold up on U.S. government shutdown

Gold rose on Tuesday on rising save haven demand after the first U.S. government shutdown in 17 years threatened to impair the recovery of the worlds biggest economy. Silver, platinum and palladium tracked the metals upward momentum.

On the Comex division of the New York Mercantile Exchange, gold futures for December settlement rose by 0.60% to $1 335.00 per troy ounce at 8:00 GMT. Prices held in range between days high and low of $1 337.80 and $1 325.20 an ounce respectively. The precious metal plunged on Monday but trimmed its weekly decline to 0.2% following Tuesdays rebound.

Gold rose as investors sought safe haven following first U.S. government shutdown since 17 years began as lawmakers failed to pass a budget for the 2014 fiscal year. This could potentially put nearly 1 million state employees on unpaid leave with were no further negotiations planned yet. 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.

Meanwhile, both parties still disagree over raising the nation’s debt limit, which would render the U.S. Treasury Department unable to borrow around October 17. According to the Congressional Budget Office, the U.S. won’t have enough money to pay all of its bills at some point between October 22 and October 31. Moodys Investors Service warned that a failure to raise the debt ceiling would have a much worse impact on the financial markets than a government shutdown.

Justin Smirk, senior economist at Westpac Banking Corp., said for Bloomberg: “We’ve never seen such a breakdown like we’re seeing at the moment and it’s happening during the middle of a very slow recovery from a fairly deep recession. You’ve got people going for gold as a hedge.”

The dollar index, which measures the greenbacks performance against a basket of six major counterparts, fell to an eight-month low. The December contract traded at 80.02 at 7:54 GMT, down 0.39% on the day after plunging to a session low of 79.96, the weakest level since the first week of February. The U.S. currency gauge slipped on Monday and extended its weekly decline to 0.4%.

Gold and other dollar-priced commodities tend to trade inversely to the dollar. Weakening of the greenback makes dollar-denominated raw materials cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Market players were also closely watching the the political situation in Italy 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. Enrico Letta is due to pass a vote of confidence on Wednesday.

Elsewhere on the precious metals market, silver, platinum and palladium followed gold to the upside. Silver futures for December settlement traded at $21.888 an ounce at 7:57 GMT, up 0.83% on the day. Prices held in range between days high and low of $21.968 and $21.635 a pound respectively. Palladium for delivery in December rose by 0.23% to a new session high $728.80, while low was touched at $722.30. Meanwhile, platinum futures for January settlement traded at $1 413.00 per troy ounce, up 0.04% on the day. The metal rose to a session high of $1 413.20, while days low stood at $1 396.90.