MARKET NEWS

(Bloomberg) -- Gold traders faced a volatile session on Friday as a technical outage on the Chicago Mercantile Exchange disrupted markets, bringing another headache just weeks after the longest-ever US government shutdown ended.

The hours of disruption hit trading across markets including gold futures and options on the Comex, which are often used to hedge exposure to prices in London. A lack of live trading or pricing for those contacts can make it harder to trade as they diverge from spot prices in London, the dominant trading hub.

Spot bullion rose as much as 0.9%, before paring gains in choppy trading, with the market also seeing a brief surge in bid-ask spreads. CME began to gradually restore operations, with the EBS market, a platform used in foreign exchange and precious-metals trading, reopening. They was as yet no information about when other affected markets would resume operations.

The outage comes after traders had also recently faced the challenge of the US government shutdown, which had affected the release of economic data that markets use to gauge the outlook for US interest rates. With Comex contracts affected, some traders said they reverted to old-school methods of calling brokers and dealers by phone on Friday in order to hedge their exposures.

“Spot and futures market goes hand-in-hand, as bullion traders use the futures to offset or hedge activity in the spot market,” said Saxo Bank A/S strategist Ole Hansen. “When that leg goes dark, the spot market suffers as well through higher spreads and lower activity, obviously not helped by the fact this was going to be a quiet day anyway, with the long Thanksgiving weekend in the US.”

Bid-ask spreads, the gap between what dealers offer to pay for gold and what they will sell it for, briefly surged at the beginning of London trading hours, before falling closer to normal levels. These spreads tend to widen when there is less liquidity in the market, or during periods of elevated volatility.

“The interruption in live pricing limits short-term visibility and temporarily affects intraday trading activity,” said Alexander Zumpfe, senior trader at German precious metals refiner Heraeus Group. Still, “the impact on the physical precious-metals market is limited at the moment, as overall liquidity is relatively low following the Thanksgiving break,” he said.

Meanwhile, bullion is still up more than 2% this week, and on track for its fourth monthly gain after hitting a record high in October. A series of comments by Federal Reserve officials and the release of delayed economic data have supported the case for lower borrowing costs, which typically benefit gold as it doesn’t pay interest.

Traders have digested every last clue for the next US rate decision. There’s limited news expected on Friday with no economic data scheduled for release in the US, and no expected Fed speakers ahead of a blackout period leading up to their anticipated December decision. Following the recent government shutdown, some statistics will not be released at all, making it challenging for the Fed and investors to assess the state of the world’s largest economy.

Bullion is on track for its best annual performance since 1979. Elevated central-bank buying as well as robust inflows to exchange-traded funds supported the metal’s run to a record above $4,380 last month. Investors have piled into alternative assets in a wider retreat from government bonds and currencies.

Gold added 0.4% to $4,174.71 an ounce by 12:12 p.m. in London. The Bloomberg Dollar Spot Index strengthened slightly. Platinum gained 1.9% and palladium fell 2.7% as both whipsawed, impacted by lower liquidity. Silver advanced as much as 1.5%, approaching the record high set last month, supported by ongoing supply tightness.