(For more on the gold bear market, see EXT5. For more on the shutdown, see EXT2.)
Oct. 11 (Bloomberg) -- Gold tumbled to a three-month low on speculation that U.S. lawmakers will reach an agreement to increase the nation’s debt limit and end a government shutdown, curbing demand for bullion as a store of value.
President Barack Obama and House Republican leaders were moving toward an agreement to extend the nation’s borrowing authority as they remained at odds over terms for ending the partial government shutdown. A settlement would put the world’s largest economy back on track for recovery and potentially pave the way for the Federal Reserve to reduce monetary stimulus. Gold has dropped 24 percent this year as U.S. growth quickened.
“A deal in the making and eventual slowing of the stimulus are very negative for gold,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. Prices also dropped as “we saw heavy technical selling come in, with several stop-losses being triggered.”
Gold futures for December delivery fell 2.2 percent to settle at $1,268.20 an ounce on the Comex at 1:49 p.m. in New York, after touching $1,259.60, the lowest for a most-active contract since July 10. Prices capped a second straight weekly retreat.
Trading in December futures was halted for 10 seconds at 8:42 a.m., according to the CME Group Inc., which owns the exchange. The “stop-logic” mechanism gives traders the opportunity to provide additional liquidity and prevent excessive price movements. Bullion dropped about $20 in the minute before trading paused.
Gold is heading for the first annual loss since 2000 and the biggest decline since 1981, as some investors lost faith in the precious metal as a store of value and amid concern that the Fed may slow the pace of its $85 billion monthly bond purchases.
Goldman Sachs Group Inc. and Morgan Stanley are among banks forecasting that U.S. lawmakers will reach a resolution, putting the focus back on the Fed paring stimulus. Traders should sell gold next year amid an extended economic recovery, Jeffrey Currie, Goldman’s head of commodities research, said this week.
Fifteen analysts surveyed by Bloomberg News expect prices to decline next week, while eight are bullish and four neutral, the highest proportion of bears since Sept. 13. Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, fell to 896.38 metric tons yesterday, the lowest since February 2009.
Silver futures for December delivery declined 2.9 percent to $21.259 an ounce, the biggest drop since Sept. 20.
On the New York Mercantile Exchange, platinum futures for January delivery fell 1.5 percent to $1,375.60 an ounce. The metal has retreated 11 percent this year. Palladium futures for December delivery rose 0.1 percent to $713.30 an ounce, extending the week’s gain to 1.6 percent.
--Editors: Thomas Galatola, Patrick McKiernan