Gold futures for December delivery were last down $4.60 or 0.2 percent at $1,626.40 per ounce in New York; however, the initial drop was far less than the 5-10 percent correction that some analysts had predicted immediately following a debt ceiling deal.
Republican and Democratic leadership over the weekend agreed to support a plan to raise the country's debt limit by $2.1 trillion in exchange for around $2.5 trillion in spending cuts over the next decade. The plan is expected to be voted on later this afternoon.
“There has been some [gold] selling overnight but traders haven't been particularly aggressive,” a US-based trader said. “This package still has to get voted on and, given the last couple weeks of drama and dysfunction, there's always the chance for things to go pear-shaped at the last minute.”
“The market can now turn their attention back to Europe, which is in a far, far worse position than the US,” the trader added.
The sell-off in precious metals was not as dramatic as some might have feared because the debt agreement by itself does not preclude a possible downgrade of the US’ debt rating, Standard Bank said.
“With a total of $2.5 trillion in deficit cuts proposed over the next decade falling short of the $4 trillion some have touted as required to maintain the [US’] AAA rating, uncertainty prevails,” it said. “This should see investor interest in the safe-haven appeal of gold and silver not completely evaporate.”
The index of US factory activity from the Institute for Supply Management dropped to 50.9 from 55.3 in the previous month, the ISM said on Monday. This was also lower than expectations for a reading of 55.
“[The ISM] number is just another reminder that the economy still isn't healthy,” a US-based fund manager said. “Gold's going to be well supported until the US shows some signs that it's ready to move out of the doldrums.”
In wider markets, the dollar was last about 1.25 cents higher against the euro at 1.4270, while the Dow Jones Industrial Average was down 53 points or 0.44 percent at 12,090.11.
Additionally, support for gold is coming from speculative community. Last week, the speculative length on Comex rose 20.7 tonnes to 866.4 tonnes. This was due to a modest 8.6-tonne decrease in longs to 965 tonnes and a sizeable 29.3-tonne reduction in shorts to 98.6 tonnes, according to CFTC data.
“The sustained drop-off in gold speculative shorts is encouraging. Nevertheless, the build-up in long positions seems overdone, which could see some price weakness over the next week,” Standard Bank said.
As for the other precious metals, Comex silver for September delivery was last down 48.1 cents at $39.625 per ounce. Trade has ranged from $39.04 to $39.83.
Platinum for October delivery on Nymex was up $10.90 at $1,796.20 per ounce, while the September palladium contract was up $14.90 at $842.60.