Is gold about to have its first positive quarter in a year? It certainly looked likely last night as the gold price hit a nine-day high, reaching $1,354 on the back of looming deadlines in the U.S.

We do not expect to see gold rally in the same manner it did back in 2011, but there will clearly be some upside to the ongoing political issues in the U.S. Like in 2011, any gains were made following the U.S. debt ceiling debate and budgets are likely to be unsustainable.

The showdown in Congress over government funding, as well as the jobs numbers on Friday, are likely to be the focus of gold market participants this week.

Sentiment surrounding the employment data appears to be mixed. Some expect weak September data whilst others believe there will have been an improvement from August. Jobless claims have begun to slow, therefore the unemployment rate may have fallen.

Physical gold demand

Physical gold demand is likely to be a mixed bag this week. China is on holiday for some of the week as part of its Gold Week holiday, this is likely to see a small drop in physical demand.

Physical gold will find support, despite the China holiday as Indian gold demand may well be back with a (small) bang as of tomorrow. Following a very public lobbying battle from the Gems & Jewellery Export Promotion Council (GJEPC), the Directorate General of Foreign Trade (DGFT) has issued clarifications on the import restrictions of gold. Whilst import restrictions were originally enforced over worries regarding the current account deficit, this has had the negative benefit of increasing smuggling. The DGFT are no doubt hoping this clarification will reduce the smuggling rate.

Indian citizens were once reminded again this weekend that their love for gold was the reason for the countrys economic problems. The surge in gold and oil imports led the countrys economy through a turbulent path and increased the CAD, said Dr Narendra Jadhav of the Member of Planning Commission and Advisory Council, Government of India.

LBMA, manipulation and forecasts

Concerns over manipulation and the opaque nature of the London Gold Market has clearly reached the LBMA, who are holding their annual conference in Rome this week. The LBMAs Chairman, David Gornall, told Reuters last night that the association might look into charging members more or even dissolving the GOFO rate, thanks to new market regulations.

Bank of America Merril Lynch is the latest to lower their gold forecasts for 2014. The bank expects to see an average price of $1,294, a fall of 17% from their original forecast. They believe gold will lose support as U.S. interest rates are slowly increased. Their forecast remains more bullish than Goldman Sachs who believe the price of gold will touch $1,000 in 2014.

BAML are more optimistic about the silver price in 2014, which they expect to outperform gold. They have still lowered their silver forecast however by 4.5% to $27.63/oz.

And finally

The Guardian reported over the weekend the recovery of nearly 100 tonnes of silver from the SS Gairsoppa, a British ship that was sunk in 1941 by a German torpedo. Only 20% of the 150m loot will be returned to the Treasury and the Royal Mint, the other 80% will go to U.S. salvage firm Odyssey.