London: Gold fell below USD 1,300 an ounce on Thursday as the dollar rebounded on signs Washington was moving towards breaking a stalemate over debt and averting a US default.
House Republican leaders will visit the White House on Thursday as efforts intensify to break the impasse that has left parts of the US government shuttered for more than a week.
Both the Republican and Democratic parties earlier floated the possibility of a short-term increase in the country`s USD 16.7 trillion debt limit to avoid a default and allow time for broader negotiations on the budget.
"If there is some kind of risk aversion or uncertainty you would expect gold to move higher, which has not been the case with the US budget impasse unfolding," ABN Amro analyst Georgette Boele said.
"Investors have continued to sell gold on rallies and expectation the US political deadlock will soon be behind us could result in further losses."
Spot gold fell 0.6 percent to USD 1,298.51 an ounce by 1008 GMT, after dropping 0.9 percent in the previous session, the biggest daily loss since October 1.
US gold futures for December were down USD 8.50 an ounce at USD 1,298.60.
A rise in US 10-year Treasury yields to 2.70 percent from 2.60 percent just a week ago helped the dollar index extend its recovery from an eight-month low hit a week ago.
As gold pays no interest, the rise in returns from US bonds and other markets is seen as negative for the metal.
"How the US dollar moves in the near term may provide direction for gold," HSBC said in a note. "It is possible that investors move into Treasuries as a safe haven despite the possibility of US default. This could reduce yields and bolster the dollar but detract from gold."FED TAPERING
Gold was also undermined by Wednesday`s minutes from the September policy meeting showing that the Fed`s decision last month was a "relatively close call" for policymakers and there was still broad support to trim bond-buying this year.
Gold has fallen about 22 percent this year on fears the Fed would start cutting back its USD 85 billion bond purchases as the metal had been boosted by central bank liquidity and a low interest rates environment, which encourages investors to put money into non-interest-bearing assets.
The central bank stunned markets last month when it decided not to taper.
Physical buying for the metal also failed to pick up despite lower prices.
"The concern has been the lack of physical demand out of China over the last 2 sessions... physical premium in Hong Kong has actually decreased and orders aren`t that sizeable," MKS SA said in a note.
In other precious metals, silver fell 0.4 percent to USD 21.79 an ounce.
Spot platinum gained 0.5 percent to USD 1,379.99 an ounce, on persistent fears mine strikes in South Africa could hurt supply.
Spot palladium rose 0.1 percent to USD 701.47 an ounce.
First Published: Thursday, October 10, 2013, 16:51