Gold futures posted the biggest loss since July, dropping to a seven-week low, on bets that a U.S. government closure will be short-lived, damping demand for the metal as a haven. Silver also slumped.
The U.S. government began its first partial shutdown in 17 years, idling as many as 800,000 federal employees, closing national parks and halting some services after Congress failed to break a partisan deadlock. Parts of the economy that depend on the government “would be hamstrung,” President Barack Obama said before the deadline. The MSCI All-Country World Index of equities climbed as much 0.7 percent.
Gold prices tumbled 23 percent this year, heading for the first annual loss since 2000, after low U.S. inflation and a rally in the stock market to a record prompted investors to lose faith in bullion as a store of value. The slump spurred losses for billionaire John Paulson and forced Newcrest Mining Ltd. and other mining companies to announce at least $26 billion in writedowns.
“While the standoff is not a great thing, the effects seem to be limited, and we are not seeing investors rush to gold for its safe-haven quality,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “Riskier assets like equities seem to be in favor.”
Gold futures for December delivery fell 3.1 percent to settle at $1,286.10 on the Comex in New York at 1:38 p.m., the biggest drop since July 5. Earlier, prices touched $1,282.40, the lowest since Aug. 8. Trading was 19 percent above the average in the past 100 days for this time of the day, data compiled by Bloomberg show. At about 7:15 a.m., 1,200 contracts changed hands, the biggest trade today.
Bullion holdings in exchange-traded products fell 27 percent this year to the lowest since May 2010, erasing about $61.8 billion from the value of the assets. Paulson, the biggest investor in the SPDR Gold Trust, the largest gold ETP, cut his stake in the product by 53 percent in the second quarter, a government filing showed.
Billionaires George Soros and Daniel Loeb sold their entire SPDR stakes in the fund in the quarter ended June, data showed.
The U.S. faced an impasse over raising the debt ceiling in 2011 before Congress approved a plan to head off a default. Gold reached a record $1,923.70 on Sept. 6, 2011.
“Any shutdown will not last long because the actual event would put significant pressure on the two sides to find a compromise,” Georgette Boele, a commodity strategist at ABN Amro Group NV, said in a note before the midnight deadline passed.
Gold rebounded 8.4 percent last quarter, snapping three straight losses, as a slump in late June to a 34-month low attracted buyers of coins, jewelry and bars. Prices will resume declines into next year as the U.S. economy improves, banks including Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley say.
The Federal Reserve refrained from trimming its $85 billion in monthly bond purchases last month as policy makers wait for more signs of economic improvement. The decision on tapering was only “deferred,” and bullion may average $1,270 in the last quarter of 2014, Barclays Plc said Sept. 27.
Twenty-four of 41 economists surveyed by Bloomberg on Sept. 18-19 said the Fed will take the first step in slowing debt purchases in December. Prices surged 70 percent from the end of December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by buying assets.
Purchases by India, the world’s largest consumer, may fall 5.3 percent this year to 800 metric tons in the 12 months through March, compared with 845 tons a year earlier, Economic Affairs Secretary Arvind Mayaram said today. The nation raised the tax on gold imports for a third time this year in August to curtail demand and tackle a record current-account deficit.
“While there has been some short-term support for gold the overall trend remains bearish,” Sterling Smith, a Chicago-based commodity futures specialist at Citigroup Inc., said in a telephone interview. “The market does not see the need for any safe haven, even when the government of the largest economy is in a state of partial shutdown.”
Investors amassed a record 2,632.5 tons of ETP gold holdings in December amid concern that stimulus would spur inflation. U.S. consumer prices grew at a 1.5 percent annual rate in August, compared with a 10-year average of 2.4 percent, Labor Department data showed Sept. 17.
Paulson’s PFR Gold Fund rose 12 percent in August, according to a person familiar with the matter who asked not to be identified because the information is private. The gain pares the $400 million fund’s loss this year to 55 percent. Futures climbed 6.3 percent in August amid concern that the U.S. would launch a military strike against Syria, and prices fell 4.9 percent last month as tensions eased.
Physical demand from Asia remains subdued and prices probably won’t gain much unless the buying returns, VTB Capital, a unit of Russia’s second-largest lender, wrote in a report last month. The U.S. Mint sold 13,000 ounces of American Eagle gold coins in September. That’s down from this year’s high of 209,500 ounces in April and compares with 68,500 a year earlier, data on its website show.
Silver futures for December delivery fell 2.5 percent to $21.175 an ounce. Earlier, the price touched $20.63, the lowest since Aug. 12. The metal has plunged 30 percent this year.
The precious metals led the decline in the Standard & Poor’s GSCI Spot Index of 24 raw materials, which touched a seven-week low.
On the New York Mercantile Exchange, platinum futures for January delivery fell 1.9 percent to $1,385.30 an ounce, the largest decline since Sept. 20. Earlier, prices dropped to $1,375, the lowest since July 10.
Palladium futures for December delivery slipped 1.1 percent to $718.90 an ounce on the Nymex, the biggest loss since Sept. 20.