Gold retains gains as U.S. jobless claims fall less than expected

Gold continued to advance in late European trading on Thursday after the U.S. Labor Department reported that the number of people who filed for initial unemployment benefits during the week ended October 12 fell less than expected. California continued to work through a backlog and the number included non-federal workers who were laid off during the 16-day government shutdown, suggesting it will take time to gauge the exact impact of the fiscal impasse on the economy.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December traded at $1 317.10 per troy ounce at 13:05 GMT, up 2.71% on the day. Prices held in range between a one-week high of $1 322.70 and low at $1 273.80 per ounce. The precious metal added 0.5% on Wednesday and extended its weekly advance to over 3.5%.

The number of people who filed for initial unemployment benefits retreated from last weeks six-month high by 15 000 to 358 000 but California continued to work through a backlog caused by computer issues, the Labor Department reported today. Analysts surveyed by Bloomberg expected a drop to 335 000 claims filed. The report also included non-federal workers who were dismissed during the 2-1/2 week federal government shutdown.

A Labor Department analyst said claims in California remained at similar levels as in the previous week, while there has not been a perceivable increase in filing from non-federal furloughed workers.

Despite the smaller-than-expected drop in claims, the four-week-moving average which rose by 11 750 to 336 500 remained consistent with a steady labor market. The number of Americans who continued to receive jobless payments, which excludes the people receiving extended benefits under federal programs, fell by 43 000 to 2.86 million in the week ended October 5.

Gold surged back to positive territory above the $1 300 mark earlier in the day after the Chinese rating agency Dagong lowered its U.S. credit rating to A- from A and maintained its negative outlook. Despite the agency hardly being followed outside of China, the downgrade triggered an instant fall of the U.S. dollar as other credit agencies also pointed out recently that the U.S. creditworthiness is not as good as it once was. Fitch Ratings warned earlier in the week that the U.S. AAA sovereign rating could be lowered and put it on negative watch. In August 2011, Standard & Poor’s lowered its U.S. rating to AA+ after prolonged debt limit discussions, such as the recently ended, almost shut the government.

The U.S. dollar index, which measures the greenback’s performance against six major counterparts, fell by 0.87% to 79.88 at 13:04 GMT. Prices fell to a session low of 79.79, the weakest level since October 4, while day’s high stood at 80.65. The December contract was almost unchanged on Wednesday and extended its weekly decline to 0.8% on Thursday.

U.S. lawmakers reached an accord yesterday to raise the nation’s debt ceiling and end a 16-day government shutdown. The agreement was however just a temporary measure and was seen as kicking the can down the road. The bill provided government funding until January 15 and extended the nation’s borrowing authority through February 7. After the initial positive sentiment, expectations for a re-run of the debt ceiling discussions in February and anticipations that the Federal Reserve will refrain from trimming its monetary stimulus this year pressured the dollar and allowed dollar-denominated commodities to extend positions. The Federal Open Market Committee will meet again on October 29-30 when policy makers will reassess the U.S. economic recovery and their stance. Laurence D. Fink, BlackRock Inc. Chief Executive Officer, said for CNBC that the Federal Reserve may not scale back its quantitative easing program before June next year.