LONDON - Gold fell on Monday as investor concern about debt default in the United States, the world’s largest economy, receded after President Barack Obama announced a last-minute deal to raise the country’s borrowing limit.
Spot gold was bid at $1,615.59 a troy ounce, by 1036 GMT, down 0.7 percent from $1,626.59 an ounce late on Friday. Earlier on Monday the precious metal fell more than 1 percent to a low of $1,607.69 an ounce, off a record high of $1,632.30 hit on Friday.
“It’s risk-off at the moment. The fact that gold hit an all-time high on Friday and is off today reflects the mood that the risk (of a U.S. default) has diminished over the course of the weekend,” said Ross Norman of Sharps Pixley.
Republican and Democratic lawmakers were expected to vote on Monday on the deal to raise the U.S. borrowing limit and cut about $2.4 trillion from the deficit over the next decade.
While the deal comes just in time for the August 2 deadline, uncertainty remains over whether it will be enough for country to maintain its top-notch credit rating, keeping gold’s appeal as a hedge against risk intact.
“This (plan to raise the debt ceiling) is only one step and the U.S. will still have issues to face looking ahead so it’s not an end to the gold bull,” Norman said.
The dollar enjoyed a relief rally against the yen and Swiss franc also weighed on precious metals. A higher U.S. currency gold more expensive for holders of other currencies.
The most-active U.S. gold futures fell more than 1 percent to $1,608.2, but recovered to trade down 0.8 percent at $1,618.50 an ounce.
ECONOMIC UNCERTAINTY
Despite Monday’s slide, economic and political uncertainty are expected to keep gold attractive to investors.
Ongoing jitters about the euro zone’s debt crisis will also boost gold market sentiment.
“The prospect of a powerful rally in gold reflects ongoing stress in the financial system and the maintenance of super low interest rates,” Deutsche Bank analyst said in a note.
Gold has in recent years gained from historically low interest rates, which means there is little or no opportunity cost to holding the precious metal, which pays no dividends or interest.
“There also appears to be a strong perception among investors that gold can provide protection in environments of inflation and deflation,” Deutsche said.
“Consequently, in almost any economic scenario today the advancing gold price appears to be irreversible.”
In South Africa, coal and gold miners will meet the Chamber of Mines in separate talks on Monday in a bid to end stoppages that have cost Africa’s largest economy tens of millions of dollars in lost output.
Some 100,000 gold miners downed tools on Thursday, halting operations at AngloGold Ashanti , Gold Fields and Harmony Gold .
“The readiness of unions to go on strike for extended periods and persistent large gaps between pay offers and demands suggest that settlements in affected sectors may be significantly above (inflation),” Citi analysts wrote in a note.
“While we don’t foresee a major negative impact on sales volumes, it amplifies South Africa’s already high mining inflation.”
Spot silver was down 0.9 percent at $39.45 an ounce, while spot platinum fell 0.9 percent to $1,794.99 an ounce.
Spot palladium rose 0.6 percent to $845.25 an ounce, adding to gains after rising 11.7 percent in July — its best monthly gains so far this year.
