Gold Falls as U.S. Budget Accord Reduces Demand for Haven

Gold futures fell as congressional negotiators reached a U.S. budget agreement, curbing the appeal of the metal as a haven.

Chief architects Senator Patty Murray and Representative Paul Ryan said a government shutdown will be avoided when funding authority expires Jan. 15, and the accord aids the economy. Yesterday, gold rose to the highest since Nov. 20 after the dollar’s drop boosted demand for the commodity as an alternative asset.

“There’s been lingering concern in the markets over the budget, and the agreement reduces the demand for a safe haven,” David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview. “We’re seeing some profit-taking in gold on the deal.”

Gold futures for February delivery fell 0.3 percent to settle at $1,257.20 at 1:38 p.m. on the Comex in New York. Trading was 24 percent below the average in the past 100 days for this time, data compiled by Bloomberg show.

The budget deal may mean that a reduction in Federal Reserve stimulus is drawing closer, Commerzbank AG said in a note.

Gold has declined 25 percent this year, heading for the first annual drop since 2000. Some investors lost faith in the metal as a store of value amid a U.S. equity rally to a record and low inflation.

Fed policy makers will probably begin reducing $85 billion in monthly bond purchases at a meeting next week, according to 34 percent of economists surveyed on Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 poll.

Prices Capped

The Fed meeting “will keep a cap on prices,” David Govett, the head of precious metals at Marex Spectron Group in London, wrote today in a report. “Although I feel that tapering is already discounted to a degree, if they do act this month, it will cause a knee-jerk reaction on the downside.”

Silver futures for March delivery rose 0.2 percent to $20.356 an ounce on the Comex. Earlier, the price reached $20.48, the highest since Nov. 20.

On the New York Mercantile Exchange, palladium futures for March delivery gained less than 0.1 percent to $738.55 an ounce. Platinum futures for January delivery lost 0.3 percent to $1,385.20 an ounce.

The largest union at Lonmin Plc’s South African mines got permission to strike after a mediator failed to resolve a deadlock over wages between the labor group and the world’s third-biggest platinum producer, according to the Association of Mineworkers and Construction Union. A decision on a strike would only be made next year, AMCU National Treasurer Jimmy Gama said.

Before it's here, it's on the Bloomberg Terminal.