SINGAPORE — Gold added to gains on Tuesday and was hovering near a one-week high as the US government shutdown entered its second week, moving closer to a deadline to raise the national debt ceiling and sending the dollar to near eight-month lows.
Prices also found support from China, which reopened after a week-long National Day holiday. Glimmers of hope in the US budget standoff surfaced on Monday, with President Barack Obama saying he would accept a short-term increase in the nation’s borrowing authority to avoid a default, but there was still no breakthrough in sight.
The US faces an October 17 deadline to raise its $16.7-trillion debt limit. Failure to reach an agreement would push it towards an unprecedented default and roil global markets.
"There won’t be any default on the US debt as I don’t think Congress will want to take that risk," Haitong International Research macroeconomist Alexis Garatti said in Hong Kong.
"We will probably have a last-minute agreement. In the very short term, we expect gold prices to increase because of the surge in risk aversion. But we expect an agreement before the 17th, so gold will retreat to levels seen in the beginning of the month."
Mr Garatti also said the uncertainty around the debt ceiling would prompt the Federal Reserve to postpone any tapering of the stimulus measures to December or early 2014, providing some medium-term support for gold.
Spot gold rose 0.4% to $1,325.96 an ounce by 2.50am GMT, trading near its highest in a week.
Gold has lost a fifth of its value in 2013 on fears the Fed will stem the flow of easy money that has increased the metal’s appeal as a hedge against inflation.
Platinum jumped for a third day on fear mine strikes in South Africa could hurt supply.
Physical support
Dealers in Hong Kong said they were seeing good buying interest from China, the second-biggest gold consumer after India.
Gold importers in India started processing orders to restock ahead of the peak wedding and festival season and after the customs department cleared remaining consignments at a major airport.
Gold imports had virtually come to a stop in India for about two months after a new rule that required a fifth of all imports to be re-exported. Banks are just beginning to place orders after uncertainty over the rules were cleared up.
