Gold for December delivery GCZ3 -2.81% dropped $38.40 ounce, or 2.9%, to $1,288.60 an ounce on the Comex division of the New York Mercantile Exchange. On Monday, gold fell $12.20, or nearly 1%, to settle at $1,327 an ounce, but marked the first quarterly gain in a year.
“Gold is selling off sharply with a lack of safe-haven demand in the short run,” said Jeffrey Wright, managing director at H.C. Wainwright LLC. “Part of the reason for the deflationary sentiment is the federal government is not expanding the deficit during the partial shutdown.”
A short shutdown has a minimal impact on the broader economy and does not change the Federal Reserve’s timetable on tapering quantitative easing, he said. Besides, the “bigger battle comes in two weeks with the debt ceiling. No deal on the debt ceiling will lead to safe-haven demand from all quarters and should cause a run on the U.S. dollar.”
But if the budget standoff stretches into next week, “then it could begin to negatively impact the U.S. dollar and drive demand for gold and other safe-haven assets,” Wright said.
The dollar index DXY -0.08% traded only modestly lower on Tuesday.
In the gold-futures market, volume was heavy amid the selloff, analysts said. Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., noted chatter that a major fund was said to be rebalancing its gold position.
“The event that will have the desired impact for the bulls is now 17 days away, when the fight draws to a climax on the debt-ceiling negotiations,” said Peter Hug, global trading director at Kitco Metals Inc., in a daily note. “If they blow this one, the work accomplished over the past few years will be for naught.”
Julian Phillips, a founder of and contributor to GoldForecaster.com, said that if the shutdown is not resolved within the next 17 days, “then the U.S. is likely to be downgraded in credit markets, its economy will falter and confidence in the U.S. as leader of the global economy will stumble.”
In that case, “we see the potential for an impact on the global system equal to the mid-2007 credit crunch,” he said. “This will be more than a ‘game of chicken’ as it has been building up for years now.” Read about what gold did before, during and after the last shutdown.
Other metals traded on Comex dropped, with silver, which is usually more volatile than gold given it’s a smaller market, leading the way. December silver SIZ3 -2.52% dropped 99 cents, or 4.6%, to $20.72 an ounce. Silver lost 7.7% for the month of September, and rose 11.5% for the quarter, based on the most-active contracts, FactSet data showed.
January platinum PLF4 -1.74% sank $33.60, or 2.4%, to $1,378.80 an ounce. Prices fell 7.5% for the month of September and rose 5.4% on the quarter. December palladium PAZ3 -0.98% PAZ3 -0.98% lost $11.15, or 1.5%, to trade at $716 an ounce, after gaining 0.5% for September and climbing 10% for the third quarter.
Copper for December delivery HGZ3 -1.44% dropped 6 cents, or 1.8%, to $3.26 a pound. It closed September with a 2.8% gain and the quarter with a gain of 8.7%.