Gold in tight range amid US budget talks, fund outflows

Reuters
An employee arranges gold jewellery as customers shop at a MoneyMax pawn shop outlet in Singapore August 23, 2013. REUTERS/Edgar Su
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An employee arranges gold jewellery as customers shop at a MoneyMax pawn shop outlet in Singapore August 23, 2013. REUTERS/Edgar Su

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold traded in a narrow range on Tuesday, hovering near three-month lows as outflows from gold funds continued and as lawmakers made some progress towards resolving the U.S. budget impasse.

Gold, whose safe-haven appeal is usually burnished during times of geopolitical and economic uncertainty, has failed to gain despite protracted wrangling over the fiscal deadlock in the United States.

It has dropped about 4 percent to below $1,300 an ounce since a partial government shutdown began on October 1.

"Based on historical analysis, we think the weeks following a (possible) default would be the time for gold to rally," said Amber MacKinnon, an analyst at Nomura Securities in Sydney.

"Unless we actually see that, gold will be in a holding pattern. The upside is more likely if we get a (credit) downgrade."

During the last fiscal debate over raising the U.S. debt ceiling in 2011 - when a deal was only reached at the last minute - gold did not react sharply until after Standard & Poor's downgraded the U.S. credit rating, MacKinnon said. Prices eventually hit an all-time high of $1,920 in September that year.

"It appears that gold doesn't rally on a safe-haven basis in times of political tensions in the U.S. until after the event has occurred," MacKinnon said.

Spot gold had ticked up 0.02 percent to $1,273.10 an ounce by 0317 GMT, after snapping a four-day losing streak in the previous session.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 1.85 tonnes to 889.13 tonnes on Monday to hit fresh four-year lows - reflecting diminishing investor confidence.

A month of combat in the U.S. Congress over government spending showed signs of giving way to a Senate deal to reopen shuttered federal agencies and prevent an economically damaging default on federal debt.

Senate Majority Leader Harry Reid, a Democrat, and his Republican counterpart, Mitch McConnell, ended a day of constant talks with optimistic proclamations, as details leaked out of the pact they were negotiating.

Precious metals prices 0317 GMT

Metal Last Change Pct chg YTD pct chg Volume

Spot Gold 1273.10 0.31 +0.02 -23.97

Spot Silver 21.12 -0.13 -0.61 -30.25

Spot Platinum 1373.99 -3.51 -0.25 -10.49

Spot Palladium 710.47 -2.03 -0.28 2.67

COMEX GOLD DEC3 1272.90 -3.70 -0.29 -24.04 11467

COMEX SILVER DEC3 21.14 -0.21 -1.00 -30.24 3755

Euro/Dollar 1.3556

Dollar/Yen 98.48

COMEX gold and silver contracts show the most active months

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)

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