Gold inches higher as budget stalemate enters a second week, U.S. debt limit in focus

Gold marked a minor advance on Monday as investors weighed the budget impasses impact on Feds monetary stimulus program against a possible deflation arising. The partial government shutdown entering a second week fueled concern for a tough-to-reach agreement between lawmakers on raising the nations debt limit by October 17, which would lead to an unprecedented U.S. debt default. Silver and platinum were little changed, while palladium marked a moderate decline.

On the Comex division of the New York Mercantile Exchange, gold futures for December settlement rose by 0.19% to $1 312.40 per troy ounce at 9:02 GMT. Prices held in range between session high and low of $1 316.20 and $1 308.80 an ounce respectively. The precious metal fell by 0.4% on Friday and settled the week 1.9% lower after adding 0.8% in the preceding one.

Gold rose on Monday as the partial U.S. government shutdown extended into a second week, fueling concern that Republicans and Democrats will most likely fail to reach an easy agreement on raising the country’s debt ceiling by October 17 which would lead to an unprecedented debt default. Postponed releases of U.S. data last week left the market without a distinct direction and caused gold to trade in a narrow range. The metal settled the week almost 2% lower as most investors expected the shutdown to be short-lived and without any major impact on the U.S. economy. The budget impasse extending into a second week however fueled speculations that a further protraction may delay the Federal Reserves bond purchases reduction, which many analysts expected to commence in the fourth quarter.

Republican House Speaker John Boehner pledged on Sunday not to raise the nation’s borrowing limit without a “serious conversation” about what is driving the debt. Boehner however said he doesn’t intend to let the government default, something which he told his fellow members behind closed doors, even if it involves using Democratic votes.

Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore, said for CNBC: “Economic data or any news on the debt ceiling will determine the direction that gold and silver will take. Until then, it will be range bound. If we dont see any progress till the 17th, I think we will see gold spike to $1,400.”

Gold was range bound in recent sessions after the Labor Department postponed the release of its highly anticipated unemployment rate and non-farm payrolls on Friday as the federal government remained partially shut. Also on Friday, the Commodity Futures Trading Commission did not release its weekly Commitment of Traders data, which provides details on positions in U.S. futures and options markets. With no economic data coming out, market players are keeping a close watch on physical demand numbers for some kind of orientation.

Holdings in the SPDR Gold Trust, the biggest bullion-backed ETP, remained unchanged for a second day on Friday at 899.99 tons, data on the web site showed. This was the lowest level since February 2009.

Gold was supported as a weaker dollar underpinned dollar-denominated commodities. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, traded at 80.03 at 9:02 GMT, down 0.26% on the day. The December contract held in range between day’s high of 80.19 and low at 80.01. The U.S. currency gauge rose by 0.5% on Friday but settled the week 0.15% lower after losing 1.6% in the preceding two five-day periods. Dollar-priced raw materials are supported by a weakening of the greenback as it makes them cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Elsewhere on the precious metals market, silver and platinum were little changed, while palladium posted a moderate retreat. Silver for delivery in December was up 0.03% to $21.758 per ounce at 9:00 GMT, while platinum January futures traded at $1 387.35, down 0.05% on the day. Palladium for delivery in December declined by 0.53% to $698.20 an ounce. The metal held in range between days high of $703.50 and low at $697.30 per ounce, near Fridays two-week low.