Gold hits 3-month low on U.S. debt deal optimism

Gold extended its fall on Tuesday and fell to the lowest since July after U.S. lawmakers said on Monday they made progress toward reaching an accord over raising the nations borrowing capacity before the October 17 deadline. Silver fell for a sixth day to a two-week low, followed by platinum and palladium.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December fell by 1.03% to $1 263.40 at 8:11 GMT. Prices held in range between days high of $1 275.70 and low of $1 262.40, the lowest since July 9. The precious metal fell by 0.1% on Monday, a fifth straight daily decline, and extended its weekly fall to over 0.6%.

Despite the lack of a deal between Democrats and Republicans on raising the nations debt ceiling, gold extended losses as negotiations progress on Monday fanned optimism for a resolution before the October 17 deadline. Senate Majority Leader Harry Reid said on Monday he is very optimistic that an agreement can be reached this week. The potential agreement would extend the borrowing limit through February 7, fund the government through January 15 and require a House-Senate budget conference by December 13. The Congressional Budget Office said that the U.S. will run out of money and start missing payments on its obligations at some point between October 22 and October 31.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “The market’s expecting that there will be a resolution, and that it will come at the last minute. If it doesn’t, we may see some safe haven demand.”

Broad expectations for a resolution to the fiscal impasse continued to curb safe haven demand for gold as an end to the deadlock would put the economy back on track to recovery and allow the Federal Reserve to begin tapering its monetary easing program. Protocols of the Federal Open Market Committee’s September meeting showed last week 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 to 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.

The U.S. dollar index, which tracks the greenbacks performance against six major counterparts, fell by 0.02% to 80.37 at 8:10 GMT. The December contract held in a narrow range between 80.46 and 80.34. The U.S. currency gauge fell by 0.1% on Monday after it settled 0.3% higher last week.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, fell to 889.13 tons on October 14, data on the web site showed. This was the lowest since February 2009.

Elsewhere on the metals market, silver, platinum and palladium tracked golds downward momentum. Silver futures for delivery in December fell for a sixth day and traded at $20.960 per ounce at 8:07 GMT, down 1.85% on the day. Prices held in range between days high of $21.318 and low at $20.918 per ounce, the weakest level since October 1. Platinum for delivery in January declined by 0.73% to $1 373.45 an ounce and varied in a days range between $1 380.70 and $1 372.05 per ounce. Palladium December futures fell to $711.90 an ounce, down 0.47% on the day. The metal ranged between days high and low of $715.10 and $711.20 per troy ounce respectively.