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Gold at lowest in one month as investor confidence dips

Published: December 6, 2012 | 7:39 am
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Spot gold falls as low as $1,690.64 an ounce; US futures contract drops to near a one-month low of $1,692.60

Dec 05 2012
London: Gold prices fell more than 1% to their lowest in nearly a month on Tuesday, with uncertainty over stalled US budget negotiations denting investor fervour for the metal.
Dealers say confidence in gold has been eroded by memories of last December’s 10% price slide and disappointment that prices failed to break $1,800 an ounce when the US announced a third round of monetary easing in September.
Spot gold fell as low as $1,690.64 an ounce and was down 1% at $1,697.81 at 1454 GMT, while the most-active US futures contract was down 1.2% at $1,700.10, having earlier dropped to a near one-month low of $1,692.60.
Wall Street struggled for traction at the open, with the market hostage to negotiations in Washington on how to avert a “fiscal cliff”—$600 billion of impending tax hikes and spending cuts that could push the US economy into recession.
Republicans in Congress proposed steep spending cuts to bring down the US budget deficit on Monday but gave no ground on President Barack Obama’s call to raise taxes on the wealthiest Americans, and the proposal was dismissed by the White House.
Investors are divided over the potential impact of negotiations on gold, leaving it hostage to technical pressures.
“We tend to get the best short-term spikes in gold, and the best performance relative to the other commodities, when there is a lot of financial stress in the market,” said Sean Corrigan, chief investment strategist at Diapason Commodities Management.
“If you think the cliff will spike up volatilities and cause a safe-haven run, then gold will benefit from that,” he said. “(But) if they smooth it all over…in the short term it will quash those worries, and may therefore not help gold’s cause in the immediate aftermath of a deal being done.”
Gold broke below $1,710 an ounce and subsequently $1,705 in Asian trade, key chart levels it had held since early November, which triggered stop-loss selling, traders said.
A break of key psychological support at $1,700 and a move below the metal’s 100-day moving average at $1,695 for the first time since mid August accelerated selling, taking prices to a low of $1,690 an ounce.
“Gold is finding it difficult to convince the masses that it should…be benefiting from the uncertainty and rising concerns surrounding US fiscal cliff negotiations, rather than being weighed down by the negative sentiment,” UBS AG said in a note. “As a result, trading the yellow metal and taking positions ahead of key policy decision—with the FOMC (Federal Open Market Committee) meeting next week and the ongoing negotiation on the fiscal cliff—has become increasingly difficult. Given the lack of clarity on gold’s next direction, many have chosen to stay on the sidelines.”
A recent drop in rupee-priced gold due to a stronger local currency has attracted buyers in India, while physical demand in the rest of Asia remained lacklustre as market participants wait for a clear direction in prices.


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