Gold steady near two-week highs on Fed stimulus outlook

Gold advanced on Monday and remained firm above the $1 300 mark on certainty that the Federal Reserve will refrain from paring its monetary stimulus in October and speculations for extending the delay past December. The U.S. dollar hovered over an 8-1/2 month low. Silver, platinum and palladium also advanced.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December rose by 0.31% to $1 318.70 per troy ounce at 8:33 GMT. Prices held in range between days high and low of $1 323.90, near a two-week high, and days low of $1 312.80. The precious metal added 3.5% last week, the best performance in two months, after losing 4.9% in the preceding two five-day periods.

Despite the deal U.S. lawmakers managed to strike to avert a U.S. debt default, gold rose amid broad expectations that the 16-day federal government shutdown likely caused enough harm to the fourth quarter economic growth that the Federal Reserve might defer tapering its monetary stimulus until 2014. U.S. lawmakers reached an accord that provides government funding until January 15 and extends the nation’s borrowing authority through February 7. However, there was no resolution to lawmakers’ long-term divides on fiscal policy and no major policy changes sought earlier by Republicans were achieved.

The precious metal’s movements have largely tracked shifting expectations for tapering this year and has lost 21% so far on projections that the Fed will commence scaling back the stimulus in 2013 and bring it to an end by mid-2014.

Barnabas Gan, analyst at OCBC Bank, said for CNBC: “Given the U.S. government shutdown and the economic risk that the U.S. economy is facing, expectations for tapering in October seem less strong than before.”

A weak dollar allowed gold to extend gains. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, traded at 79.77 at 8:33 GMT, up 0.10% on the day. The December contract shifted between day’s high of 79.80 and low at 79.68, near Friday’s 8-1/2 month low of 79.55. The U.S. currency gauge fell by 1% last week, a second decline in three. A weakening of the greenback makes dollar-denominated raw materials cheaper for foreign currency holders and boosts their appeal as an alternative investment.

According to a CNBC survey of analysts, twelve out of 23 participants, or 52%, expect gold to extend its advance this week. Nine analysts, or 39%, wagered that the metal will decline, while the remaining two, or 9%, predicted no significant change.

However, the lack of robust physical demand has been limiting golds gains even during the 16-day partial federal government shutdown in the United States and the debt ceiling impasse.

Barclays Capital said in a note: “In our view, gold is likely to struggle to build upon the rally in a sustained fashion unless physical demand shows signs of considerable improvement and investor sentiment turns more favorable.”

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained unchanged for a second day on Friday at 882.23 tons, data on the website showed. This was the lowest since February 2009.

Elsewhere on the precious metals market, silver futures for December settlement rose by 1.21% to $22.178 per troy ounce at 8:27 GMT. Prices held in range between days high of $22.283, the strongest level since October 9, and low of $21.853 per ounce respectively. The metal settled 2.7% higher last week, offsetting the previous two five-day periodss combined 2.1% decline.

Platinum for delivery in January rose by 0.17% to $1 440.25 per troy ounce and held in range between days high of $ 1446.15, near Fridays one-month high, and low of $1 434.80 an ounce. The precious metal added 4.80% last week, snapping seven consecutive weeks of declines.

Palladium December futures surged 0.64% to $745.50 per troy ounce at 8:32 GMT. The contract jumped to session high of $747.40 an ounce, the strongest level since August 28, while days low stood at $741.30. The metal rose by 4% last week, the most since July.