Gold ends week in the red as US standoff persists
NEW YORK (Oct 6) Gold was traded into the red over the week, dragged down by uncertainty surrounding the US political impasse caused after nation's lawmakers failed to reach an agreement over the country's budget, bringing the first US government shutdown in 17 years.
Gold futures finished the week 1.86% lower at $1,310.20 an ounce versus last week's close of $1,336.30. Bullion hit its lowest level of $1,276.90 an ounce on Wednesday, while it reached its peak of $1,353.80 an ounce on Monday.
Ongoing US shutdown
The partial shutdown started at midnight on Monday after hours of negotiations between Democrats and Republicans in Congress. Both parties failed to agree on funding the world's largest economy, leaving as many as 800,000 federal employees out of work along with an array of federal institutions closed.
The shutdown, the first in 17 years, caused an array of important US macroeconomic data to be delayed, including Friday's highly anticipated non-farm payrolls release.
The standoff may cost the US at least $300 million a day in lost economic output at the start.
Moreover, the risk of a US default has marred markets more than the shutdown as it was questionable whether Congress would raise the $16.7 trillion debt ceiling before the US Treasury was pushed into a corner and, possibly, caused to delay making an interest payment on $12 trillion of outstanding government bonds.
Recently, the Treasury stated that its borrowing authority would dry out as soon as October 17. By the end of this month, unless the Treasury has other options, it will not have enough to pay some $70 billion in principal and coupon payments due to bondholders.
On Thursday, the Treasury released a report about the potential impacts of 'debt ceiling brinksmanship'. "In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth," the report assesses. "The result then was a recession more severe than any seen since the Great Depression."
President Barack Obama in an interview with CNBC earlier in the week warned the financial sector that "this time is different." Obama stated that investors "should be concerned."
US data
First-time unemployment claims in the US rose by 1,000 to 308,000 in the week ending September 28, from an upwardly revised figure of 307,000 recorded in the previous week, while a reading of 315,000 had been expected, the data released on Thursday showed.
On the same day, the ISM non-manufacturing Composite Index for September showed a drop to 54.4 points from 58.6 seen a month before, compared with an expected reading of 57.0.
