Gold fell for a fourth day in five on Friday and settled the week almost 3% lower amid broad expectations that U.S. lawmakers were getting closer to an agreement over reopening the partially shut federal government and raising the nations debt limit. Republicans and Democrats were discussing a short-term solution of the debt ceiling deadlock, which led investors to believe the breakthrough in the fiscal impasse was imminent.
On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December settled the week at $1 271.90 per troy ounce, down 1.93% on the day. The precious metal sank to a three-month low of $1 262.60 per troy ounce but managed to recover some of its losses throughout the session and settled the week 2.98% lower.
CME Group Inc.s Comex division stopped the trade of December gold futures for 10 seconds on Friday after the metal lost $20 within a minute, using a “stop-logic” mechanism. It allowed traders to provide additional liquidity and prevent excessive price movements. Damon Leavell, a spokesman for the exchange, declined to comment on the size of the deal which triggered the halt.
Gold fell on Friday 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 which would push 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.
However, the fiscal stalemate continued over the weekend as Senate Republicans blocked Democrats plan to suspend the debt ceiling through 2014 on Saturday. Discussions between House Republicans and President Obama also hit a dead end. Senate Democrats rejected a proposal by Republican Senator Susan Collins and Democrat Joe Manchin of West Virginia that would push the next debt ceiling decision to the end of January and provide government funding for the next six months to March.
Senators Harry Reid and Mitch McConnell sat down face to face on Saturday for the first time since July after talks between House Republicans and the White House failed. They both described their discussions as “constructive” but “very preliminary”.
“Senator McConnell and I have been in this body a long time. Weve done things for a long time together. I know him. He knows me. We dont agree on everything, and thats, as you know, an understatement,” Senator Reid said. “We’re trying to figure out a way to go forward,” he added.
The political turmoil left investors ambivalent about their expectations of golds price movement. Many expected increased safe haven demand for gold to underpin the market but risk of deflation arising and broad expectations that the deadlock will be resolved before reaching the deadline kept prices pressured. 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.
JPMorgan Chief Executive Officer Jamie Dimon said for Bloomberg: “The United States cannot default and, in my opinion, will not default. It would ripple through the global economy in a way you couldn’t possibly understand.”
Senator Bob Corker, a Tennessee Republican, said that the talks between Reid and McConnell, two veteran deal makers, represent the best chance for an agreement. “It’s very evident that the White House is not going to be involved in negotiations, or at least at this point they’re not. The centerpiece is Reid and McConnell, so I think all of us want to support those efforts,” Corker added.