Gold ends off highs with government talks on tap
SAN FRANCISCO (Oct 14) Gold futures rebounded Monday from a three-month low, but closed off the session’s highs as news that U.S. President Barack Obama will meet with congressional leaders helped to dull some of the yellow metal’s investment appeal.
December gold gained $8.40, or 0.7%, to settle at $1,276.60 an ounce on the Comex division of the New York Mercantile Exchange. Prices had topped $1,290 in electronic trading overnight. Silver futures were also on the rise, with the December contract +0.64% up 9.5 cents, or 0.5%, at $21.35 an ounce, following highs above $21.60.
Volatility for gold remains high amid uncertainty surrounding the nation’s fiscal issues.
“All parties are desperately trying to avoid default but remain far apart on the solution,” said Edmund Moy, chief strategist with gold-backed IRA provider Morgan Gold. “As discussions between the president and Congress intensify before this week’s potential default, expect gold prices to be very sensitive to every little bit of news on progress or the lack thereof.”
A White House official said Monday that Obama would meet with congressional leaders of both parties Monday at 3 p.m. Eastern ahead of Thursday’s deadline for raising the borrowing limit and as the government shutdown stretched into a 14th day. Over the weekend, talks in the Senate aimed at avoiding a U.S. default had failed to make progress, with tensions escalating as Democrats refused to sign on to any deal that would continue across-the-board spending cuts into next year.
“In the mid term, gold is likely to benefit from continuing major concerns about the health and sustainability of the U.S. economic recovery, the ability for the [Federal Reserve] to taper [quantitative easing] without significant negative impact to the equity markets, strong gold demand from Asia, and the fear of inflation from all the excess liquidity from QE,” said Moy, who’s also a former director of the U.S. Mint.
$1,300 level is key
Gold dropped sharply last week, ending Friday below the $1,300-an-ounce level and touching three-month lows.
The precious metal is trading below the “psychological level” of $1,300, said Naeem Aslam, chief market analyst at AvaTrade.
“If the U.S. is able to strike an 11th-hour deal over its debt ceiling, this could certainly thrust the price further to the downside,” he said in emailed comments.
Friday’s drop had come on what were seen as meager signs of progress toward a deal to raise the debt ceiling and ensure the U.S. avoids a default, analysts said.
But even before that, gold had struggled to find safe-haven interest. Gold’s 2.2% slide on Friday came despite what was only “very tentative” progress on a budget deal, with the December contract testing important chart support at $1,270 an ounce, said analysts at Credit Suisse.
“A break below would be a negative technical signal. We stay cautious on gold,” they wrote.
Goldman Sachs’s chief economist, Jan Hatzius, warned that the government shutdown could cut around half of a percentage point from real gross domestic product in the fourth quarter. And analysts at Barclays said broad risk reduction alongside weaker equity markets has weighed on prices.
“Gold has failed to benefit from the recent risk events, and although a catalyst lingers in the form of the looming debt-ceiling deadline that could push gold prices higher, given the negative market sentiment and our base case, prices are likely to resist yet another opportunity,” they said in a note.
