Gold falls on profit taking, soft U.S. service report supports

Gold prices slumped on Thursday after investors locked in gains and sold for profits.

A U.S. government shutdown that weakened the dollar on Wednesday bolstered the yellow metal to levels ripe for profit taking, though a lackluster industry report on the service sector curbed losses by keeping expectations going for the Federal Reserve to keep stimulus programs in place for now.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at USD1,316.50 during U.S. afternoon hours, down 0.32%.

Gold prices hit a session low of USD1,302.30 a troy ounce and high of USD1,321.80 a troy ounce.

Gold futures were likely to find support at USD1,278.20 a troy ounce, Wednesday's low, and resistance at USD1,375.10, the high from Sept. 19.

The December contract settled up 2.69% at USD1,320.70 a troy ounce on Wednesday.

An ongoing U.S. government shutdown continued to dampen demand for the greenback and sent gold prices climbing to levels ripe for profit taking.

President Barack Obama met with Republican and Democratic leaders in Congress on Wednesday, although a solution still seemed unlikely.

Markets were also considering how the political deadlock will affect negotiations to raise the U.S. debt ceiling, which the U.S. Treasury Department has estimated will be reached by Oct. 17.

Elsewhere, soft U.S. service-sector data supported prices somewhat.

The Institute of Supply Management reported earlier that its non-manufacturing purchasing manager's index fell to a three-month low of 54.4 in September from 58.6 in August. 
Analysts were expecting the index to decline to 57.4 last month. 

Separately, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending Sept. 28 rose by 1,000 to a seasonally adjusted 308,000, better than analysts' calls for jobless claims to rise by 6,000 to 313,000 last week. 

Jobless claims for the preceding week were revised up to a gain of 307,000 from a previously reported increase of 305,000. 

The spotty data kept expectations firm that the Federal Reserve will likely keep its USD85 billion monthly bond-buying program in place through December.
Fed asset purchases drive down interest rates to spur recovery, weakening the dollar in the prices and making gold an attractive hedge. 

Elsewhere on the Comex, silver for December delivery was down 0.66% at USD21.752 a troy ounce, while copper for December delivery was down 1.28% and trading at USD3.274 a pound.