Gold retreats on U.S. debt deal optimism

Gold fell for a fourth day on Friday to a three-month low on hopes that the U.S. political impasse will be resolved soon after Thursdays meeting between Republicans and Barack Obama fanned optimism. Silver, platinum and palladium fell as well.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December fell by 0.55% to $1 289.80 per troy ounce at 8:15 GMT. Prices held in range between days high of $1 294.50 and low at $1 283.70, the weakest level since August 7. The precious metal plunged 1.2% on Thursday, a third straight daily retreat, and extended its weekly decline to 1.6%.

Gold continued to fall after House Speaker John Boehner and other Republican leaders met with President Barack Obama on Thursday to discuss a short-term solution of the debt ceiling deadlock, pushing back the deadline from October 17 to November 22 with no policy conditions attached. President Obama was reported to have rejected the plan, but Republican Paul Ryan told reporters he had neither accepted nor rejected the offer. Despite the lack of conclusion, the discussion and proposal were viewed by market players as a step forward and fanned optimism that the political standoff will be resolved soon. The debt limit vote could be held as early as today.

James Steel, an analyst at HSBC Securities (USA) Inc., wrote in a note: “Gold fell on optimism over a short-term U.S. debt ceiling extension. The path of least resistance appears to be lower for gold.”

An exit from the political impasse would return the economy back on track to recovery, allowing the Federal Reserve to begin reducing its bond purchases by the end of the year. Protocols of the Federal Open Market Committee’s September meeting showed that most policymakers felt comfortable to trim the central bank’s quantitative easing program by the end of the year. The minutes revealed that Fed’s 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 gold’s physical demand and price gains, leaving the metal at a lower level before the government shutdown began.

According to a Bloomberg survey of analysts, gold will most likely extend its retreat into next week. Fifteen out of 27 participants expected prices to continue declining next week, while eight wagered the metal will advance. The remaining four were neutral.

Holdings in the SPDR Gold Trust, the biggest bullion-backed ETP, fell to to the lowest since February 2009 at 896.38 tons yesterday after remaining unchanged for two days at 898.18 tons, data on the web site showed.

The dollar index, which measures the greenbacks performance against six major trading partners, fell by 0.17% to 80.44 at 8:08 GMT. Prices held in range between days high and low of 80.62 and 80.41. The U.S. currency gauge rose by 0.2% on Thursday, a third straight daily gain, but trimmed its weekly advance to 0.25% on Friday.

Elsewhere on the market, silver, platinum and palladium tracked golds downward momentum. Silver December futures traded at $21.583 per ounce at 8:11 GMT, down 1.45% on the day. The metal plunged to session low of $21.513 an ounce, the weakest level since October 2, while days high stood at $21.855. Platinum for delivery in January fell by 0.59% to $1 387.70 an ounce and held in range between days high and low of $1 391.55 and $1 383.50 per ounce. Palladium futures for December settlement slipped 0.23% to $710.90 and shifted in a days range between $711.70 and $706.70 per troy ounce.