BLBG:Gold Drops on U.S. Fiscal Cliff Talks as ETP Holdings at Record
Gold declined for a third day as the dollar’s strength damped demand for alternative investments, countering record holdings in exchange-traded products.
U.S. House Speaker John Boehner offered to raise income tax rates for high earners in exchange for containing the cost of federal entitlement programs, as part of a deal with President Barack Obama to avert the so-called fiscal cliff in automatic tax increases and spending cuts due to take effect in January. The dollar strengthened against a six-currency basket after Shinzo Abe’s victory in Japan’s general election increased expectations that the central bank will add to stimulus.
“We had slightly more positive news on the fiscal cliff,” said Saeed Amen, an analyst at Nomura International Plc in London. “Also with year-end approaching, and liquidity likely to be lower, investors might not wish to hold positions. What happened last December might well be in investor’s memories.”
Spot gold fell 0.4 percent to $1,689.85 an ounce by 10:10 a.m. in London after falling as much as 0.6 percent. Gold for February delivery slipped 0.4 percent to $1,690.80 an ounce on the Comex in New York.
Gold is down 1.5 percent in December, poised for a third monthly loss. It dropped 10 percent in December 2011. Bullion increased 8.1 percent this year as central banks from the U.S. to China and Europe took action to prop up economies, debasing currencies and increasing haven demand. Bullion slid to a one- month low of $1,684.77 an ounce on Dec. 7.
Washington Negotiations
“Fiscal cliff negotiations continue in Washington, and the gold market is attentively awaiting resolution,” Edel Tully, a London-based analyst at UBS AG, wrote in a report today. “A delay in negotiations beyond year-end would mean that uncertainty would continue to loom over gold, thus perpetuating trading difficulties and muddy price action.”
Possible changes to capital gains tax as part of a fiscal cliff deal will affect U.S. investors and may prompt selling of gold, she wrote. More than $600 billion of tax increases and spending cuts are due to take effect in January in the absence of a deal.
Holdings in ETPs expanded 12 percent this year to 2,630.703 metric tons on Dec. 14, data compiled by Bloomberg show. While money managers raised net-long positions in gold futures and options by 3 percent to 129,865 contracts in the week ended Dec. 11, the total number of speculative long positions fell 1.2 percent, dropping for a second week, U.S. Commodity Futures Trading Commission data show.
Silver for immediate delivery lost as much as 0.5 percent to $32.1050 an ounce, the least expensive since Nov. 16, before trading at $32.175. It’s still the best-performing precious metal this year, up 16 percent.
Spot platinum dropped 0.8 percent to $1,604.62 an ounce, and has risen 15 percent this year, and palladium declined 0.8 percent to $697 an ounce, still up 6.4 percent in the year.
To contact the reporter on this story: Maria Kolesnikova in London at mkolesnikova@bloomberg.net
To contact the editor responsible for this story: John Deane at jdeane3@bloomberg.net
