Gold drops on U.S. govt shutdown uncertainty, low demand

by **Cals** Thu 03 Oct 2013, 22:07

Business & Markets 2013

Written by Reuters

Thursday, 03 October 2013 19:25

* Gold gained 2.2 pct in previous session
* Shutdown could delay stimulus tapering -Fed official
* Physical demand remains subdued in Asia

LONDON/SINGAPORE (Oct 3): Gold fell on Thursday, as investors booked profits after the previous session's gains, due to uncertainty about a partial U.S. government shutdown and slow demand in key physical markets.

The metal rose 2.2 percent on Wednesday, posting the biggest daily gain in two weeks, as the dollar fell to an eight-month low and the shutdown showed no end in sight.

Failure to increase the debt limit would push the world's biggest economy into default and shake markets, already on the edge over the outlook for U.S. stimulus.

"There is some profit-taking and volumes are low, as investors are not certain of the U.S. political deadlock," VTB Capital analyst Andrey Kryuchenkov said.

"October 17th is the deadline for the U.S. debt ceiling talks, and... as far as gold is concerned, I think there isn't enough conviction in the market, for the safe-haven appeal to really materialise."

Spot gold was down 0.7 percent to $1,305.60 an ounce, by 1019 GMT. Gold had fallen 3 percent earlier this week, when a big Comex sell order rattled investors and sent prices below $1,300 an ounce.

The metal has lost nearly a quarter of its value this year, as investors fretted the U.S. central bank would roll back its $85 billion bond-buying stimulus.

Increased central bank liquidity and a low-interest-rates environment, encourage investors to put money into non-interest-bearing assets, such as gold.

After yesterday's weaker-than-expected ADP jobs data catapulted gold higher, investors will continue to watch U.S. economic numbers, although many federal agencies have stopped collecting and publishing economic data, due to the shutdown.

The lack of official data on the economy, could further delay a reining in of stimulus, Eric Rosengren, head of the Federal Bank of Boston, said on Wednesday.

Uncertainty over the release of the non-farm payrolls data on Friday, was unnerving investors, analysts said.

As a gauge of investor sentiment, SPDR Gold Trust — the world's largest gold-backed exchange-traded fund (ETF) and a good indicator of investor sentiment — said its holdings fell 4.2 tonnes, to 901.79 tonnes on Wednesday — the biggest fall in nearly three weeks.

Physical demand remained weak, as China was shut for the National Day holidays.

Gold premiums in China fell from over $40 an ounce, at the start of July, to less than $10 by the end of September, as prices rose, Macquarie said.

"More bearish (is that)... when the gold price fell back in September, the premium did not rise, as might have been expected, suggesting a non-price related weakening of Chinese demand; in other words that the Chinese might not want much gold," it added.

Silver fell 0.9 percent, to $21.51 an ounce.

Spot platinum fell 1 percent to $1,374 an ounce, and spot palladium edged down 0.6 percent to $711.72 an ounce.