Gold prices rebound after three-day slump

SAN FRANCISCO (MarketWatch) — Gold prices climbed Wednesday, rebounding after a three-session loss of nearly 4% as uncertainty surrounding the U.S. budget and debt ceiling lured some investors back to the precious metal.

December gold (GCZ3)  rose $17.60, or 1.3%, to $1,333.90 an ounce on the Comex division of the New York Mercantile Exchange. After losing $10.70, or 0.8%, on Tuesday, prices had tallied a three-session loss of 3.9%.

AFP/Getty Images Gold futures head higher after a three-session drop.

Jeffrey Wright, managing director at H.C. Wainwright LLC, said gold found support Wednesday from short covering, a weaker dollar (DXY)  and the "looming U.S. fiscal scenario" that's weighing on the dollar and boosting gold.

Treasury Secretary Jacob Lew has said that the nation's debt ceiling would be reached on Oct. 17.

So far, "there is still no workable legislation that could pass both houses of Congress and be signed into law," said Wright.

And the "likelihood of a U.S. government shutdown is increasing by the day" with Congress and Obama Administration "very far apart on any deal to continue funding the government," he said. Without new spending in place before Oct. 1, the government would partially shut down for the first time since 1996.

"In the end, I think all of these factors are attracting buyers to gold today and I would anticipate through the end of the week as it looks like a budget deal will come down to the last possible minutes once again," Wright said.

MARKETS | Expanded markets coverage
• The Tell: Market news and analysis
• U.S. and Canada markets | Canada section
• Columns: Stocks | Oil | Gold | Bonds | Dollar

TOOLS AND DATA | Markets data menu
• My Portfolio: Know where your funds are?
• Real-time currency exchange rates
• After-hours stock screener
/conga/story/misc/markets.html 240610

Also contributing to gold's strength was the fact that prices managed to hold firm at a key technical support level on Tuesday — at around $1,305, said Gene Arensberg, editor of the Got Gold Report.

"The sell down attempt stalled and found good support on the Comex at "precisely where one would expect it to and that is giving gold bulls a cup of courage today."

Meanwhile, the dollar edged lower against many of its currency rivals Wednesday as data showed U.S. sales of new homes rebounded in August. Weakness in the greenback often boosts prices for dollar-denominated commodities.

New home sales rose 7.9% to a seasonally adjusted annual rate of 421,000 in August, rebounding after a large drop in July. Separate data also showed that orders for durable goods edged up 0.1% in August, defying expectations for a decline.

For now, other metals on Comex traded mostly higher along with gold.

December silver (SIZ3)  tacked on 30 cents, or 1.4%, to $21.88 an ounce and December copper (HGZ3)  traded at $3.27 a pound, up almost 2 cents, or 0.5%.

January platinum (PLF4)  rose $11, or 0.8%, to $1,433.10 an ounce, while December palladium (PAZ3)  inched up by $3.45, or 0.5%, to $723.45 after a 0.3% climb a day earlier.

Week ahead

Looking ahead to next week for gold, "there's little cause to expect a lot of heavy trading either way," said Adrian Ash, head of research at BullionVault in London. "This weekend marks the end of the third quarter (or very nearly), so expect few new positions from hedge-fund traders."

Monday and Tuesday will then see the London bullion market "decamp to Rome for its annual conference," he said. "But again, don't expect dealing through the world's physical center to be anything like as heavy as the pasta being ordered on this year's jolly."

Also next week, China will start its Golden Week holidays. "Bullion already shipped ahead of this auspicious celebration will no doubt be snapped up by eager investors and shoppers," said Ash. But import demand from the world's new No.1 gold-buying nation will also take a break as wholesalers take a holiday.

So that leaves U.S. payrolls data to "set the pace," he said, when they're released on Oct. 4.

Among equities Wednesday, the Philadelphia Gold and Silver Index (XAU)  climbed 2.4%, tracking gains in metals prices. The gold-backed SPDR Gold Trust exchange-traded fund (GLD)  added 0.9% and the iShares Silver Trust (SLV)  rose 0.8%.