Gold Falls as Investors Weigh Prospects for Debt Deal, Tapering

LONDON (Oct. 10)  Gold declined in London, dipping below $1,300 an ounce, as the dollar gained while investors assessed the prospects for an agreement to raise the U.S. debt ceiling and reduced economic stimulus.

U.S. lawmakers are open to a short-term rise in the debt limit, according to Republican and Democrat aides who spoke on condition of anonymity. Most Fed policy makers said the central bank was likely to taper bond purchases this year, according to minutes of their last meeting, when they unexpectedly refrained from reducing the pace of bond-buying. The dollar climbed against a basket of 10 currencies for a third day.

“We recommend staying away from gold at this point in the cycle,” Morgan Stanley analyst Joel Crane said in a video report received today. Tapering is “postponed not canceled, and is expected by year end,” Morgan Stanley analysts wrote in an Oct. 7 report, adding that they expect the political stalemate in Washington to be broken before the debt ceiling is breached.

Bullion for immediate delivery fell 0.6 percent to $1,298.29 an ounce by 10:13 a.m. in London. Gold for December delivery fell 0.7 percent to $1,298.60 on the Comex in New York.

Futures trading volume was 20 percent below the average for the past 100 days at this time of day, data compiled by Bloomberg show. Prices touched a one-week low yesterday as the dollar rose against the basket of currencies tracked by Bloomberg. The dollar was 0.1 percent higher against the basket today. Bullion and the greenback typically move inversely.

‘Loose’ Settings

Gold declined 23 percent this year on speculation that the U.S. central bank may reduce its $85 billion monthly bond- buying program, known as quantitative easing, as the economy recovers. Bullion rose 70 percent from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by buying debt, increasing concern about currency debasement.

“Monetary settings will still be extremely loose even if tapering starts,” said Bjarne Schieldrop, Oslo-based chief commodity analyst at SEB AB.

Silver for immediate delivery fell 0.3 percent to $21.814 an ounce. Platinum gained 0.1 percent to $1,382.63 an ounce, and palladium added 0.2 percent to $703.28 an ounce.