Gold off lows, trades near Thursday's rally close
NEW YORK (Oct 18) Prices of gold erased a portion of earlier losses on Friday, but still remained in the red. The previous day's rally was on the back of a falling US dollar and increased fears that the US government shutdown most likely postponed any tapering by the Federal Reserve (Fed) for the time being.
Gold futures for December delivery fell 0.18% to $1,320.80 an ounce at the time of writing, while silver was seen 0.19% higher at $21.995 an ounce.
Gold was pushed higher on Thursday as well on speculation that the Fed will more than likely have to postpone any possible tapering because of the shutdown, which caused severe damage to the US economy.
Gold is heading towards its biggest weekly gain since August. Between October 10 and 15, gold hiked 5.5% as investors took into consideration the possibility that the US Congress may let the country fall into default.
Holdings in the SPDR gold trust, which is the world's biggest bullion-backed exchange-traded product, fell to 889.13 tons. This is the lowest reading since February 2009. The gold trust has lost about 17 tons since the beginning of the shutdown, and shows a 15-ton decline for the whole of September.
"The US debt deal is seen (as) positive for gold, since the whole mess is just being postponed by three to four months, which makes a reduction of Fed asset purchases rather unlikely for the time being," said Carsten Fritsch analyst at German Commerzbank.
US Senate seals temporary fix
Weeks of political bickering centered around spending and healthcare issues came to a last-minute agreement on Wednesday evening as members of Congress passed bipartisan legislation which raises the nation's $16.7 trillion debt limit and unlocks funding for the government until early 2014.
President Barack Obama signed legislation that ended the government stalemate early Thursday in order to raise debt ceiling.
"At the same time, we remain committed to reaching agreement on a balanced fiscal package that will create jobs, grow our economy, and put us on a path toward long-term fiscal sustainability. Without question, it will require difficult choices," said Treasury Secretary Jack Lew on Wednesday.
The legislation gained substantial support on both sides of Congress, even though it left the administration's healthcare reform, commonly known as Obamacare, intact. Republicans had been trying to defund or at least postpone it.
Congress made its move just ahead of the October 17 deadline when the Treasury's ability to borrow money would have lapsed.
The US government's partial shutdown has shaved at least 0.6 percentage points off the fourth-quarter gross domestic product, totaling $24 billion, Standard & Poor's estimated on Wednesday. "The short turnaround for politicians to negotiate some sort of lasting deal will likely weigh on consumer confidence, especially among government workers that were furloughed," S&P said.
China GDP
China's economy expanded an annual 7.8% from July through September, as the government's stimulus policies provided a spike in output, but analysts remain wary about how long the growth spurt will last.
The government’s growth target for this year is 7.5%, which most analysts are expecting to be achieved.
