Risk return would aid gold prices spike

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Asian and European markets are on the decline on Monday in response to a negative news flow from across the continents.

The US House of Representatives voted 231-192 yesterday to stop many of the Affordable Care Act’s central provisions for one year, tying it to an extension of U.S. government funding through December 15. Should the Senate reject the bill today the government could be shut down from tomorrow. A stoppage could reduce fourth-quarter economic growth by 1.4 %.  The US congress is in a deadlock over Republicans’ insistence on delaying the 2010 health-care law.

In Europe, Italian Prime Minister Enrico Letta’s government is on the verge of collapse. The Prime said he will ask for a vote of confidence on Oct. 2.

German retail sales rose in August from July, although by less than expected and after two straight months of declines, indicating that business on Germany’s high streets remains moderate.

Data tomorrow forecast to show U.K. manufacturing accelerated. U.K. factory PMI forecast to rise to a 2 1/2-year high of 57.5 in September.

Japan is set to raise its sales tax next year for the first time since 1997.

China’s PMI rose to 50.2 in September from 50.1 in August.

Last week, funds reduced net longs on the dollar to the lowest since April.

Gold’s appeal as a safe harbor should serve it well in the coming week as investors grapple with the prospect of a government shutdown and the stock-market drop that would likely accompany such a heavy dose of uncertainty.

On Monday, gold for December delivery rose $1 to $1,340.20 an ounce in electronic trade, as investors had yet to run to the shelter of the precious metal.

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