Gold Edges Higher As U.S. Government Shutdown Looms

Gold prices edged higher Monday as worries over a possible government shutdown in the U.S. prompted safe-haven refuge for investors.

Gold prices were on track for the best quarter in a year, although held back by a cloudy outlook for U.S. stimulus.

Spot gold was last traded at $1338.90 per ounce, up from Friday’s 1% gain at $1336.37. As of 06:33 GMT

The metal has gained around 9% in the period from July through September, boosted by geopolitical tension in the Middle East, and some weak U.S. economic data, which in turned reduced the possibility of an early cut to the Federal Reserve’s stimulus program.

A government shutdown is expected to have a significant effect on financial markets, as most investors feel they have been through this before and expect another last-minute deal.

Government Shutdown
The possibility of a government shutdown heightened after the Republican-led House of Representatives early Sunday passed a measure that conditions the government funding to a one-year delay of President Obama’s landmark healthcare restructuring law, Obamacare.

If a stop-gap spending bill for the new fiscal year is not passed before midnight on Monday, government agencies and programs deemed non-essential will begin closing their doors for the first time in 17 years.

Senate Democrats will table the Republican measures when they convene on Monday, leaving it up to the House to pass a stand-alone spending bill free of any measures that undermine the health care law.

Over 800,000 federal workers deemed nonessential faced furloughs; millions more could be working without paychecks.

A separate House Republican bill would also ensure that military personnel continued to be paid in the event of a government shutdown, an acknowledgment that a shutdown was likely.

Fed Tapering
The gains bring an end to gold`s longest quarterly losing streak since 2001 - the metal fell more than 30 % in the three quarters to June on fears of an early end to the U.S. Federal Reserve`s bond-buying stimulus.

Despite the gains, Gold is down 20 % for the year and if this recovery is set to continue depends on the fate of the Federal Reserve’s quantitative easing program.

Successive rounds of quantitative easing and similar monetary stimulus measures have kept liquidity high and interest rates low in the United States, Europe and Japan in recent years, fuelling a rally in gold.

In its September meeting, the Fed stuck with its bond-buying stimulus, surprising markets which had expected a small reduction from this month. The Fed meets next on October 29-30.