Gold prices are narrowing as investors consider the possibility of the US soon ending the government shutdown and weak employment data.
The record-breaking 42-day closure is coming to an end after the Senate passed a temporary funding bill backed by eight Democratic Senators. Whether the government can reopen depends on the Republican-controlled House of Representatives, which is expected to return to Washington on Wednesday.
Meanwhile, according to data released by ADP Research on Tuesday, US companies have cut an average of 11,250 jobs per week. These figures show that the US labor market has slowed in the second half of October. Traders currently have to rely on private data because the government shutdown has delayed official figures.
The USD decreased after the data was released - developments that should have supported gold prices, which are priced in greenback. However, gold has erased its upward momentum and at times decreased by 0.4% before recovering.
According to Mr. Michael Haigh, Director of FIC Research and Commodities at Societe Generale, the decline in gold prices after weak US employment data may come from capital withdrawal from exchange-traded funds (ETFs) invested in gold.
My model shows that, in terms of ETF flows, every 1% increase in gold prices can be explained by about 10 tons of flows in or out of ETF funds, said Mr. Haigh.
Gold prices have been correcting in recent weeks after reaching a record high of over 4,380 USD/ounce in October, as investors took profits after a reported "too fast, too strong" rally. According to Bloomberg's synthesis data, gold ETFs have recorded three consecutive weeks of net withdrawals as of Friday, after eight consecutive weeks of net inflows before.
However, gold is still on track for its best annual gain since 1979. The strong rally the precious metal has gained more than 55% since the start of the year has been driven by many factors, including strong central bank buying.
The underlying medium-term factors that are maintaining the positive trend of gold are still intact, said Christopher Wong, strategist at Oversea Bank - Chinese Banking Corp (OCBC). He added that the US Federal Reserve (FED) is expected to continue to loosen monetary policy until 2026, with interest rates tending to decrease gradually.
At 3:55 p.m. yesterday afternoon in New York, gold prices fell 0.4%, down to $4,131.89/ounce. The Bloomberg Dollar spot index fell slightly, while silver, platinum and paladi all increased in price.
