Gold Drops as U.S. Debt Deal Avoids Default, Reopens Government

Gold Fluctuates as U.S. Deal Avoids Default, Reopens Government
Gold bars and gold coins are arranged for a photograph at the YLG Bullion International Co. headquarters in Bangkok, Thailand. Photographer: Dario Pignatelli/Bloomberg

Gold declined for the first time in four days after U.S. lawmakers reached an agreement to increase the debt ceiling and avert a government default in the largest economy, damping demand for haven assets.

Bullion for immediate delivery lost as much as 0.5 percent to $1,275.95 an ounce, reversing an earlier gain, before trading at $1,278.06 at 2:11 p.m. in Singapore. Gold for December delivery fell 0.4 percent to $1,277.20 an ounce on the Comex.

Congress voted yesterday to increase the debt limit and end the government shutdown in a bill signed by President Barack Obama. The last-minute deal ended a four-week standoff that may have hurt the recovery as growth remained “modest to moderate,” the Federal Reserve said in its Beige Book survey. Gold lost 24 percent this year on expectations the Fed will slow its $85 billion-a-month of bond buying as the economy improves.

“The market’s going to tread cautiously because all the U.S. government’s done is kick the can down the road,” said Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd. “ETF redemptions are continuing, so there are more reasons to sell,” he said, referring to outflows from exchange-traded funds backed by bullion.

Fed Outlook

Gold will drop in each of the next four quarters and reach a four-year low as reduced U.S. stimulus in response to faster growth curbs demand for bullion as a haven, the 10 most-accurate forecasters tracked by Bloomberg said. Holdings in the SPDR Gold Trust, the biggest such ETF, contracted to 885.53 metric tons yesterday, the least since February 2009.

U.S. employment growth “remained modest” in September, and price and wage pressures “were again limited,” the central bank said, based on information gathered through Oct. 7, after the partial shutdown began Oct. 1. Four Fed districts reported slower growth while the remaining eight said the expansion held steady amid the uncertainty, which saw confidence among U.S. homebuilders falling to a four-month low in October.

Fed policy makers are scheduled to gather Oct. 29-30 after they unexpectedly refrained back from paring stimulus at their last meeting. BlackRock Inc. Chief Executive Officer Laurence D. Fink said in an interview on CNBC that the Fed may not taper until as late as June following the political stalemate.

“Tapering’s pretty much off the table until at least early next year,” said Thianpiriya. “The trade over the past six months has been to get long equities and short gold or short defensive assets on growth. And that theme will probably continue at least in the short term.” Short trades refer to bets on losses, while long positions are the reverse.

Spot silver lost 0.7 percent to $21.265 an ounce after two days of gains. Platinum fell 0.3 percent to $1,395.80 an ounce after rising for three days, while palladium declined 0.2 percent to $716.13 an ounce.

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