Gold extends gains on employment data, U.S. government shutdown

Gold rose to a new session high above the $1 300 mark on Wednesday after Automatic Data Processing Inc. reported that the U.S. private sector created less jobs in September than expected. An ongoing partial shutdown of the federal government and budget discussions impasse continued to support the metal. Silver and platinum rose, while palladium trimmed losses.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December rose by 1.23% to $1 301.90 per troy ounce at 12:51 GMT. Prices surged to a session high of $1 303.50 minutes after the release of the report, while days low remained at $1 278.20. The precious metal plunged 3% on Tuesday but trimmed its weekly decline to little over 2.7% following Wednesdays rebound.

Gold extended daily gains after a report by a payrolls processor showed that U.S. companies added less jobs than expected in September, indicating a still fragile labor market prior to Fridays unemployment rate and non-farm payrolls. Automatic Data Processing Inc. together with Moodys Analytics reported that private employers created 166 000 jobs in September, underperforming expectations for an increase to 175 000. Augusts reading received a downward revision to 159 000 after being initially estimated at 176 000.

The report also showed that payrolls in the service sector rose by 147 000 in September, while employers in the manufacturing and other goods-producing industries added 19 000 jobs. Employment in factories and construction rose by 1 000 and 16 000 respectively, while headcount in the financial services was reduced by 4 000. A notable increase was marked by small employers who created 74 000 jobs, more than both medium and large businesses.

Mark Zandi, chief economist at Moody’s Analytics Inc., said in a statement: “The job market appears to have softened in recent months. Fiscal austerity has begun to take a toll on job creation and higher interest rates may also be doing some damage.”

An Obama administration official announced that the Labor Department will defer releasing its monthly employment statistics, if the federal government shutdown persists. This means that todays employment numbers will be the only ones before a budget for the new fiscal year passes, providing it with additional weight on the market sentiment.

The dollar index, which measures the greenbacks performance against six major peers, fell to a session low of 80.01 at 12:53 GMT, down 0.31% on the day. Days high stood at 80.38. The December contract fell by 0.07% on Tuesday and extended its weekly decline to 0.4% on Wednesday.

Gold was well supported and traded higher throughout the day as hundreds of thousands of state employees were put on an unpaid leave after the U.S. budget talks stalemate remained unresolved. U.S. lawmakers were still in a deadlock after they failed to pass a budget for the 2014 fiscal year before the October 1 deadline. The White House said on its website that the shutdown could cost the U.S. economy $10 billion per week. It could also cut the U.S. fourth-quarter economic growth by as much as 1.4% due to lost output from furloughed workers.

At the same time, both parties still havent reached an agreement 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.

Concerns over the shutdown’s negative impact on growth boosted speculations that the Federal Reserve might delay further tapering its monetary easing program, depending on the protraction of the budget impasse.

Chris Gaffney, senior market strategist, EverBank Wealth Management in St. Louis, Missouri, commented: “It basically says that the stimulus will continue,” referring to ADPs report. “The government shutdown will be a negative impact on the U.S. economy, extending the need for additional stimulus.”

Elsewhere on the precious metals market, silver December futures rose by 0.98% to $21.375 at 12:53 GMT, while platinum for delivery in January traded at $1 389.50, up 0.30% on the day. Palladium for delivery in December trimmed daily losses and stood at $716.10 an ounce, down 0.39%.