Gold leads precious metals’ gains as U.S. debt deadlock nears deadline

Gold rose for a third day on Wednesday as the deadline loomed for U.S. lawmakers to reach an agreement on reopening the partially shut federal government and extending the countrys borrowing authority. Broad expectations however that a deal will eventually be struck without breaching the deadline on Thursday limited safe haven demand. Silver, platinum and palladium also rose.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December rose by 0.68% to $1 281.90 per troy ounce at 8:00 GMT. Prices held in range between days high and low of $1 287.10 and $1 274.00 an ounce respectively. The precious metal rose by 0.2% on Tuesday and extended its weekly advance to over 0.8% on Wednesday.

Gold continued to recover after it fell to a three-month low on Friday as the October 17 deadline for raising the nations debt limit drew closer, despite the progress in negotiations between Democrats and Republicans. Senate majority Leader Harry Reid, a Democrat, and Minority Leader Mitch McConnell, a Republican, who began face-to-face talks on Saturday for the first time since July after negotiations between House Republicans and the White House failed, suspended talks on Tuesday while the Republican-controlled House of Representatives was discussing its own bill.

Senate leaders resumed talks after the House scrapped a vote to extend the government’s borrowing authority through February February 7 and reopen the government until December 15. Analysts warned that the lack of a long-term solution will just postpone the deadlock for several months. Fitch Ratings said that it could trim the U.S. sovereign credit rating down from AAA.

Ric Spooner, chief market analyst at CMC Markets in Sydney, said for Bloomberg: “History suggests that politicians will pull back from the abyss. Investors appear content to take a wait-and-see attitude to this situation.”

An exit from the impasse before breaching the deadline will put the U.S. economy back on track to recovery and allow the Federal Reserve to trim its monetary easing program. The lack of government funding shut many agencies which delayed the release of key U.S. economic indicators that are used for Feds policy making. Analysts expect a strong short-term market volatility as agencies work through a backlog of economic data after lawmakers extend the U.S. borrowing authority and reopen the government.

Positive data would provide the Federal Reserve with support to begin paring its monetary stimulus. Protocols of the Federal Open Market Committee’s September meeting showed last week that most policymakers felt comfortable to trim the central bank’s quantitative easing program by the end of the year. The minutes revealed that Fed’s surprising decision to refrain from tapering last month was a close call. Sentiment that the bond purchases will be reduced in the fourth quarter and will be brought to an end by mid-2014 returned to the market and limited gold’s physical demand and price gains, leaving the metal at a lower level before the fiscal impasse began.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained unchanged at 889.13 tons on October 15, data on the web site showed. This was the lowest level since February 2009.

The U.S. dollar index, which measures the greenbacks performance against a basket of six major peers, traded at 80.58 at 8:00 GMT, down 0.02% on the day, and held in a days range between 80.47 and 80.67. The December contract rose by 0.2% on Tuesday and is up 0.1% on weekly basis.

Elsewhere on the precious metals market, silver for delivery in December rose by 0.30% to $21.255 per troy ounce at 7:59 GMT and shifted between days high and low of $21.410 and $21.160 an ounce respectively. The metal fell to a three-week low on Tuesday but snapped five straight daily declines on Wednesday. Platinum January futures traded at $1 389.40 an ounce, up 0.43%, and ranged between $1 393.20 and $1 378.85. Palladium for delivery in December was little changed at $706.80, up 0.07% on the day, and shifted between high and low at $709.80 and $704.90 per troy ounce respectively.