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For the third time in three years, the government is eyeing a budget impasse that could force a government shutdown and possible U.S. default, The Wall Street Journal reported on Sept. 20. Congress faces an Oct. 1 deadline – the current fiscal year ends on Sept. 30. – to pass a budget or shut down the government. Assuming a budget is passed, the nation's debt-ceiling must also be raised or the Treasury will hit the borrowing limit sometime in October, the Journal said.
"We'll have the debt ceiling issues coming to a head again soon and so it's probably safer for the Fed to keep things as they are now between now and the December meeting," said Sean Hyman, Editor of Moneynews at Ultimate Wealth Report. "I expect gold to hit $1,500-$1,570 in the coming months."
Gold surged 4 percent on Wednesday, the biggest gain since June 2012, after Fed Chairman Ben Bernanke said the central bank was not on a pre-set course over its monetary easing program. The metal finished the week up about half a percent despite a 2.4 percent correction on Friday after St. Louis Federal Reserve President James Bullard said it was possible the Fed might start to cut bond purchases in October.
"I think we were all taken by surprise last week by the Fed and my continued short-term bearish call on gold was clearly misplaced against the Fed inspired rally," said Warren Gilman, Chairman and CEO of CEF Holdings. "But this rally will quickly be replaced by the perpetual concern for the 'inevitable taper' so I remain a short term gold bear."
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IG Markets' client positioning in the gold market as of Friday showed 75 percent with open positions are 'long', or are betting prices will rise. "I'm not bullish on gold although our client sentiment would show otherwise," said Kelly Teoh, a Singapore-based strategist with IG Markets in an email on Friday, adding gold will likely consolidate within the band of $1,345 and $1,360 this week.
Though the U.S. data this week will take on heightened sensitivity as markets once again try to guess the Fed's next move, many see the debate over who will succeed Ben Bernanke as Chairman as the next key driver for bullion markets.
Current Fed Vice-Chair Janet Yellen is the frontrunner for the top job, and if she is appointed, "the likelihood for '[Quantitative Easing] eternity'" would increase under her tenure, said Eugen Weinberg, Head of Commodity Research at Commerzbank. "This is a major positive factor for gold in medium to longer-term."
—By CNBC's Sri Jegarajah, folow him on Twitter