Gold sags to three-month low as budget optimism boosts equities

Gold dropped to the lowest in more than three months as signs that U.S. lawmakers may be closer to a budget deal boosted equities and reduced demand for the metal as an alternative asset.

House Speaker John Boehner and President Barack Obama are negotiating to avert the more than $600 billion in tax increases and spending cuts set to start in January. Obama proposed a plan that would cut $1.2 trillion in federal spending and raise a similar amount in taxes in the next decade, and House Republicans will meet privately later today to hear details of a backup plan being pushed by Boehner. The Standard & Poor’s 500 Index of equities reached a two-month high.

“If we’re seeing something substantial come out of the budget talks in terms of finally getting spending under control, then that’s bearish for gold,” Edward Meir, an analyst at INTL FCStone Inc. in New York, said in a telephone interview. “Gold has its hay day when spending is out of control.”

Gold futures for February delivery lost 1.6 percent to settle at $1,670.70 an ounce at 1:44 p.m. on the Comex in New York. The metal touched $1,662 earlier, the lowest for a most- active contract since Aug. 31.

Trading volume today was 60 percent higher than the 10-day average on the Comex.

The S&P 500 advanced as much as 1.2 percent to 1,447.32, the highest since Oct. 19.

The prospect of a sweeping budget deal “takes some of the crisis demand out of gold,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview.

Silver futures for March delivery dropped 1.9 percent to $31.669 an ounce on the Comex, after touching $31.40, the lowest since Nov. 7.

On the New York Mercantile Exchange, platinum futures for January delivery lost 0.9 percent to $1,593.70 an ounce.

Palladium futures for March delivery decreased 1.1 percent to $690.95 an ounce.

Bloomberg News

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