Bloomberg: Gold Rebounds on Tapering Speculation Amid Government Shutdown

Source: Bloomberg

By: Debarati Roy and Nicholas Larkin

Gold rebounded from an eight-week low on speculation that the Federal Reserve will delay reducing its stimulus program amid the first U.S. government shutdown in 17 years, stoking demand for the metal as a store of value. 

A budget impasse triggered furloughs for 800,000 federal workers as parks and other services were shuttered across the U.S. for a second day, subtracting at least $300 million a day in economic output, according to IHS Inc. Companies added fewer workers than forecast in September, the ADP Research Institute said today. The Fed unexpectedly refrained from reducing its $85 billion of monthly bond purchases Sept. 18 as policy makers waited for more signs of sustained expansion.

“The shutdown will lead to some delays in government spending, which will lead to a postponement in tapering as the Fed wants to see more signs of growth,” Scott Carter, the chief executive officer of Los Angeles-based Lear Capital, said in a telephone interview. “Also, today’s ADP numbers showed that the employment scenario still remains weak.” 

Gold futures for December delivery rose 2.5 percent to $1,318.50 an ounce at 10:29 a.m. on the Comex in New York, heading for the biggest gain since Sept. 19. Earlier, prices reached $1,276.90, the lowest since Aug. 7.

If the government shutdown that started yesterday lasts two weeks, it could cut growth by 0.3 percentage point to a 2.3 percent rate, according to St. Louis-based Macroeconomic Advisers LLC. The ADP report which showed a 166,000 increase in employment last month, trailed the median forecast of 180,000 in a Bloomberg survey. Gold tumbled 23 percent this year through yesterday as U.S. economy improved.                       

Debt Ceiling 

The precious metal dropped 3.1 percent yesterday, the most since July, as global equities gained 0.7 percent amid speculation the shutdown would be short-lived. There are no talks scheduled between the White House and Congress, making it more likely the standoff on a spending plan will merge with the fight over raising the U.S. debt limit later this month.

“We will also see some safe-haven bids for gold because of the debt ceiling worries,” Carter said.

The U.S. faced an impasse over raising the debt ceiling in 2011 before Congress approved a plan to head off a default. Gold reached a record $1,923.70 on Sept. 6, 2011.

Silver futures for December delivery jumped 3.3 percent to $21.88 an ounce in New York, after reaching $20.63 yesterday, the lowest since Aug. 12.