Decreased demand pulled down gold futures on Tuesday as the precious metal suffered the consequences of a brighter optimism about U.S. political leaders' capacities to solve two economic and financial issues that are riling markets, according to Bloomberg.
Bullion dropped to its lowest value in about 90 days as Senate leaders continued negotiating terms and conditions to solve the partial government shutdown and raise the debt ceiling. A deadline is looming Thursday by when the nation must remit financial obligations or it will default on payments for the first time in history.
Harry Reid, majority leader of the U.S. Senate, said on Monday that he remained hopeful about a deal emerging on Tuesday that would both prevent the onset of defaulting and end the shutdown that has been in operation for about 15 days.
"Gold is not getting many bids as people expect that some kind of a deal will be brokered before the deadline," chief strategist Ed Moy with physical gold investment firm Morgan Gold in Irvine, California told Bloomberg on Tuesday. "The market, however, will remain volatile as it will react to every headline on the debt limit."
At 11:07 a.m. on Tuesday, gold futures edged down 0.12 percent, a $1.59 loss to $1,270.89 per troy ounce.
A down 2013
The yellowish metal has had better years. With two-plus months remaining in 2013, gold futures are down roughly 24 percent. Hanging in the balance is the first yearly losses since 2000 as the annual gains streak is in peril.
MarketWatch reports gold futures achieved moderate gains during the Monday trade session. But that progress was reversed on Tuesday as the likelihood of a deal grew.
While demand slumped in the U.S. and in parts of Europe, it remained strong in China, the note stated.
"The markets continue to confirm the optimism of a deal being reached imminently," states a Tuesday note authored by global trading director Peter Hug with Kitco Metals Inc., according to MarketWatch. "Physical demand continues to be robust from China, but has dropped sharply in Europe and North America, and ETF outflows continue to add supply to a weak bid."
Reuters reports stock markets also felt the impact of optimism regarding a deal between political parties in Washington. While many shares climbed, interest in the precious metal fell.
Losses check in at 1-plus percent
Losses during the Tuesday trade session were as high as 1.2 percent, dragging down prices to the lowest mark since early July.
The yellowish metal surprisingly has not gained from the government shutdown in the U.S., host of the globe's largest economy. The U.S. dollar, which serves as the world's reserve economy, has more or less held its own during the partial shutdown. The greenback and gold futures typically perform the inverse of one another on financial markets.
"Just because gold hasn't benefited all that much from what's going on in Washington doesn't mean it won't go down if there's a resolution," analyst Nic Brown with Natixis told Reuters on Tuesday. "Our forecasts are for lower prices, under a central scenario that the (debt talks are) sorted and the U.S. economy continues to improve. The effect of the budget-related shutdown will be that while it hits (growth), it reduces the deficit more quickly. That's negative for precious metals."
Reuters reports the steep losses that gold has endured thus far this year are largely linked with anticipations that the U.S. Federal Reserve is prepared to pull back monetary stimulus measures. Those measures have benefited the yellowish metal as they fill the market with dollars, which pulls down the value of the monetary unit.
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