Gold lower on stronger dollar, potential debt deal

Gold fell for a third day on Thursday as the U.S. dollar continued to advance and a potential deal between Republicans and Democrats on raising the nations debt limit fueled hope that the economy will be put back on track and Feds stimulus will be reduced. FOMCs September meeting protocols revealed that most policymakers agreed on trimming the bond purchases by the end of the year.

On the Comex division of the New York Mercantile Exchange, gold futures for December settlement fell by 0.17% to $1 305.00 per troy ounce at 7:48 GMT. Prices held in range between $1 308.70 and $1 300.60 an ounce respectively. The precious metal plunged 1.3% on Wednesday and extended its weekly decline to 0.5% on Thursday.

Gold continued to retreat after lawmakers made some progress in ending the political deadlock. Both Republicans and Democrats representatives said Congressional leaders were willing to agree on a short-term increase of the $16.7 billion borrowing limit. This comes after President Barack Obama launched a series of meetings with lawmakers on Wednesday to search for an exit of the political impasse. Reopening the partially shut federal government and raising the nations borrowing limit would put the U.S. economy back on track for recovery and allow the Federal Reserve to pare its monetary easing program.

Protocols of the Federal Open Market Committees September meeting showed that most policymakers felt comfortable to trim the central banks quantitative easing program by the end of the year. The minutes revealed that Feds surprising decision to refrain from tapering last month was a close call. Sentiment that the bond purchases will be reduced in the fourth quarter and will be brought an end by mid-2014 returned to the market and limited golds physical demand and price gains, leaving the metal at a lower level before the government shutdown began.

“Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the committee’s purchases of longer-term securities this year and the completion of the program in mid-2014,” the minutes revealed. “With the markets apparently viewing a cut in purchases as the most likely outcome, it was noted that the postponement of such an announcement to later in the year or beyond could have significant implications for the effectiveness of committee communications.”

The precious metal was also pressured after the U.S. dollar regained strength on Wednesday as President Barack Obama nominated Janet Yellen, the Fed stimulus program’s key architect, as the person to replace Ben Bernanke as Fed Chief after his term expires on January 31. The nomination removed some of the uncertainty that rattled the markets after the central bank refrained from trimming its $85 billion per month bond purchasing program in September and spurred bets that the Fed will maintain its accommodative policy, supporting economic growth and risk appetite.

The U.S. currency rebounded yesterday after hovering for several sessions above its 8-month low. The dollar index, which measures the greenback’s strength against six major counterparts, traded at 80.62 at 7:49 GMT, up 0.21% on the day. The December contract held in range between day’s high of 80.68, the strongest level since September 26, and day’s low at 80.45. The U.S. currency gauge rose by 0.5% on Wednesday and increased its weekly advance to over 0.4% after rising on Thursday.

Wang Xiaoli, chief investment strategist at CITICS Futures Co., said for Bloomberg: “As the market tries to get a read on the political wrangling in the U.S., gold is weighed down by recent strength in the dollar. It appears that for some investors, the dollar is still the haven of choice.”

Elsewhere on the precious metals market, silver for delivery in December fell by 0.03% to $21.885 per troy ounce, while platinum January futures rose by 0.22% to $1 386.05 per ounce at 7:45 GMT. Palladium for delivery in December was unchanged at $704.10 per troy ounce.