New York/London: Gold fell 1.5 percent on Friday to its lowest in three months as unusually large sale orders in New York futures and signs a deal might be near to avert a potential US debt default prompted jittery investors to flee the bullion market.
The precious metal, generally viewed as a safe-haven investment, fell USD 30 an ounce in just minutes in early US trading, sparking selloffs in crude oil and copper. Friday's drop was reminiscent of a huge sell order that sent gold prices 3 percent lower on Oct. 1.
US gold futures trading was momentarily halted at 8:42 a.m. EDT (1242 GMT) by CME Group's Stop Logic mechanism to prevent excessive price movements. In the three minutes around the ten-second trading pause, gold prices slid almost USD 30, or about 2 percent, with an unusually heavy turnover at nearly 20,000 contracts - about one-fifth of the market's volume at the time.
Bullion's drop stands in sharp contrast with higher US equities and a lower dollar as other investors were encouraged by the first signs of progress by US lawmakers to end the standoff in Washington.
On Friday, President Barack Obama and congressional Republican leaders moved to end their fiscal impasse but struggled to strike a deal on the details for a short-term reopening of the federal government and an increase in the US debt limit.
"If there is a temporary stop-gap measure to avert a disaster of US default, it will lead to the gold market going even lower," said Jeffrey Sica, chief investment officer of Sica Wealth, which manages over USD 1 billion of client assets.
Gold's sudden price tumble was a result of hedge funds and institutional investors flooding the gold futures market with sell orders, traders said.
US Comex December gold futures settled down USD 28.70 at USD 1,268.20 an ounce by 2:27 p.m. EDT, with trading volume about 10 percent above its 30-day average, preliminary Reuters data showed.
Spot gold was down 1.5 percent at USD 1,266.80, having earlier fallen as much as 1.8 percent to its lowest since July 10 at USD 1,262.14 an ounce.
Friday extended bullion's drop to a fourth consecutive day, its longest losing streak since late June.
For the week, the metal was down 3.4 percent, its sixth weekly decline in seven weeks.TECHNICAL BREAKDOWN
Gold's losses were triggered by a break below key support between USD 1,273-1,278, which represents the low from Aug. 7, Oct. 2, and the neckline of a head-and-shoulder continuation pattern, said Jonathan Krinsky, chief technical market analyst at institutional trading firm Miller Tabak.
Technical charts now suggest gold to fall to an area between USD 1,110 and USD 1,120, below June's three-year low at USD 1,180, Krinsky said.
As a gauge of investor interest, the gold holdings of SPDR Gold Trust, the world's largest gold-backed ETF, dropped 0.2 percent, or 1.80 tonnes, to 896.38 tonnes on Thursday. That marked a four-year low.
Uncertainty over talks to lift the US debt ceiling in 2011 was a main driver for gold to hit record highs at above USD 1,920 an ounce. This year, sentiment towards bullion is much less positive, holding the metal in narrow ranges as markets largely expect the debt limit to be raised, analysts said.
Among other precious metals, silver fell 1.9 percent to USD 21.22 an ounce. Platinum was down 1 percent at USD 1,366.49 an ounce, while palladium rose 0.5 percent to USD 709.22 an ounce.
First Published: Saturday, October 12, 2013, 09:50