US shutdown: Gold price falls on prospects of last-minute debt deal

Gold price dropped on expectations US lawmakers would strike deal to prevent country defaulting on debt.

Written by Reuters | London | Published: October 16, 2013 8:55:43 pm

US shutdown: Gold price dropped on Wednesday on expectations lawmakers would strike a last-minute deal to prevent the country defaulting on its debt.

US Senate negotiations on legislation to raise the country’s $16.7 trillion borrowing limit and reopen government agencies are nearing completion,a senior Senate Democratic aide said.

Spot gold fell 0.6 percent to $1,272.40 an ounce by 1408 GMT. It plunged to its lowest since July 10 at $1,251.66 on Tuesday before rebounding. Analysts see technical support around July lows,between $1,235 and $1,240.

U.S. gold futures for December were down $0.50 an ounce at $1,272.40.

“We have heard a couple of times that they were close to reach an agreement but they haven’t… nonetheless,investors have been generally positive on a solution happening that gold prices have come under pressure anyway,” Natixis analyst Bernard Dahdah said.

If Washington does not reach a deal by Thursday,the US government will by law no longer be able to add to the national debt and will have to rely on incoming revenue and about $30 billion in cash to meet obligations.

That money is expected to run out quickly,and the government would start missing payments in the weeks ahead. A global financial crisis could follow if investors decided that US debt,used as collateral for trillions of dollars in financial deals,no longer provided adequate security.

“If an agreement isn’t reached,we might see a technical default,but there is a view that this won’t be a real default,simply that the US have failed to get to an agreement on time,and any potential support to gold would be short-lived,” Mitsubishi analyst Jonathan Butler said.

Gold has fallen about 4 percent since the government shutdown began on Oct. 1,disappointing investors who had hoped that uncertainty over the US economic situation could spur safe-haven bids.

Instead,prices have been hurt by large sell orders, amplified by technical selling,over the period.

The last time that high tension emerged over talks to lift the US debt ceiling in 2011,gold hit record highs. This year,sentiment towards bullion is much less positive.

The metal has lost nearly a quarter of its value this year on expectations the Federal Reserve will soon end its stimulus programme,which has kept interest rates low and stoked inflation fears.


Demand picked up as gold prices traded near three-month lows. Premiums – the best way to measure demand – rose in Asia.

Gold premiums in India,the world’s biggest buyer of the precious metal,hit a record $100 an ounce due to a shortage of supplies to meet festival demand.

In China,premiums in the Shanghai Gold Exchange climbed to more than $20 an ounce from about $7 two weeks earlier.

In other precious metals,silver fell 0.1 percent to $21.22 an ounce.

Spot platinum rose 0.5 percent to $1,384.24 an ounce,and spot palladium fell 0.1 percent to $704.72 an ounce.

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