Gold weekly recap

Gold fell on Friday but settled the week 3.5% higher after the U.S. dollar plunged to an 8-1/2 month low on broad expectations that the 16-day federal government shutdown has caused enough damage to the economy to refrain the Federal Reserve from tapering its quantitative easing program this year. Silver, platinum and palladium also closed the week higher.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December fell by 0.54% on Friday and settled the week at $1 315.90 per troy ounce. The metal snapped four days of gains on Friday but closed the week 3.5% higher.

Gold retreated on Friday after a rally in global equities reduced its appeal as an alternative investment and as investors locked in gains after the previous sessions 2.8% advance.

Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Florida, said for Bloomberg on Friday: “People want to be in equities as the most lucrative investment. Also, there is some profit-taking after the big rally in gold.”

Despite the deal U.S. lawmakers managed to strike to avert a U.S. debt default, gold rose amid broad expectations that the 16-day federal government shutdown likely caused enough harm to the fourth quarter economic growth that the Federal Reserve might defer tapering its monetary stimulus until 2014. U.S. lawmakers reached an accord that provides government funding until January 15 and extends the nation’s borrowing authority through February 7. The Democrat-controlled Senate passed the measure with 81 votes in favor against 18, followed by a 285-144 vote in the Republican-controlled House of Representatives three hours later. However, there was no resolution to lawmakers’ long-term divides on fiscal policy and no major policy changes sought earlier by Republicans were achieved.

Chip Hodge, senior managing director at Manulife Asset Management in Boston, said for Bloomberg: “There’s nothing to be too excited about. The can’s been kicked down the road for a few months and we will have to deal with the same issues early next year.”

The precious metal’s movements largely tracked shifting expectations for tapering this year and has lost 21% so far on projections that the Fed will commence scaling back the stimulus this year and bring it to an end by mid-2014. Laurence D. Fink, BlackRock Inc. Chief Executive Officer, said earlier in the week for CNBC that the Federal Reserve may not scale back its quantitative easing program before June next year.

Mitsubishi analyst Jonathan Butler said for CNBC on Friday: “Once the government re-opened and the agenda moved on from the debt crisis to next weeks Federal Reserve meeting, that was a trigger for gold to see some upside.” He added that the precious metal will sell off in the long-term once talks on tapering resume.

Gold advanced throughout the week but surged above the $1 300 mark on Thursday after a Chinese rating agency downgraded its U.S. sovereign rating, triggering an instant sell-off of the dollar. The U.S. dollar index for December settlement fell to an 8-1/2 month low of 79.55 on Friday and settled the week at 76.69, down 0.99%. Dagong Global Credit Rating Co. downgraded its U.S. credit rating to A- from A and maintained its negative outlook. Despite the agency hardly being followed outside of China, the downgrade triggered an instant fall in the U.S. dollar as other credit agencies also pointed out recently that the U.S. creditworthiness is not as good as it once was. Fitch Ratings warned earlier in the week that the U.S. AAA sovereign rating could be lowered and put it on negative watch. In August 2011, Standard & Poor’s lowered its U.S. rating to AA+ after prolonged debt limit discussions, such as the recently ended, almost shut the government.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, fell to 882.23 tons on Thursday from 885.53 tons the previous day, data on the website showed. This was the lowest since February 2009.

Market players remained wary ahead of the upcoming release of delayed U.S. data without clear view of how much damage the 16-day partial government shutdown caused to the economy. The most anticipated September unemployment rate and non-farm payrolls will be released on Tuesday at 12:30 GMT, coupled with average hourly earnings and average weekly hours. The report will not reveal any information about the government shutdown but it will be the final employment data the Fed will use before its October 29-30 meeting. Some analysts expect tapering to take part in December but many have begun to speculate that we won’t see any deceleration before 2014.

Also next week, existing U.S. home sales will be released on Monday, while new homes sales statistics, initial jobless claims and manufacturing PMI are due on Thursday. Import prices are scheduled for release on Wednesday, while durable goods orders and the Michigan consumer sentiment index are to be published on Friday.

Elsewhere on the precious metals market, silver futures for settlement in December fell by 0.09% on Friday but settled the week 2.7% higher at $21.928 per troy ounce. Platinum for delivery in January rose by 0.3% to $1 439.00 per ounce and settled the week 4.8% higher, snapping seven weeks of declines. Palladium December futures rose by 0.47% on Friday to $741.30 per troy ounce and settled the week almost 4% higher, the most since July.