Gold swung between gains and losses during European trading on Tuesday as market players weighed the protracted U.S. government shutdown and debt limit impasse against a possible delay in the reduction of Feds bond purchases.
On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December rose by 0.20% to $1 327.80 per troy ounce at 14:12 GMT. Prices held in range between day’s low at $1 316.10 and a one-week high of $1 330.10. The precious metal rose by 0.7% on Monday and extended its weekly advance to 1.1% on Tuesday.
Gold continued to trade with no distinct direction as the U.S. budget stalemate extended into a second week but gains were capped amid broad market expectations that an agreement for raising the nations debt limit will be reached before the deadline. Meanwhile, the lapse of government funding postponed the release of key U.S. economic data, including Fridays highly anticipated September unemployment rate and non-farm payrolls and Tuesdays U.S. trade deficit. The delay led some analysts to believe that the Federal Reserve may further refrain from trimming its monetary stimulus in the fourth quarter, providing some additional support for the precious metal.
According to JPMorgan analysts, every week of shutdown reduces the economic expansion in the last three months by an annualized 0.12%. The Congressional Budget Office said that the government will run out of cash between October 22 and October 31, if the debt ceiling does not get extended by October 17, resulting in an unprecedented U.S. default.
Joni Teves, an analyst at UBS AG in London, said today in a report: “Although there is recognition of short-term upside risks, the expectation that pressure will eventually resume as talk of quantitative-easing tapering regains traction has likely encouraged selling into rallies for now. That several U.S. data releases have been temporarily put on hold due to the government shutdown further clouds investors’ ability to formulate strong views at this stage.”
Gold continued to draw support by a broadly weaker dollar. Weakening of the greenback makes dollar-priced commodities cheaper for foreign currency holders and boosts their appeal as an alternative investment. The U.S. dollar index for December settlement slipped 0.06% to 79.97 at 14:07 GMT. The currency gauge plunged to a session low of 79.94 in late European trading, while days high stood at 80.17. The contract fell by 0.2% on Monday and extended its weekly decline to 0.3% on Tuesday.
David Govett, head of precious metals at Marex Spectron Group in London, wrote today in a report: “We will stay supported as long as the U.S. keeps playing brinkmanship with itself and as the deadline for the debt ceiling approaches. Interest in the market is pretty low. Once this farce is out of the way, I think we head lower.”
The metal also drew support by upbeat physical demand from its top two consumers, China and India. Dealers in Hong Kong said they were seeing good buying from China after the country’s Golden Week holiday ended. Meanwhile in India, gold importers began processing orders to re-stock ahead of the peak wedding and festival season.