By Myra P. Saefong and Victor Reklaitis, MarketWatch
SAN FRANCISCO (MarketWatch) -- Gold futures fell on Tuesday, heading for their fifth losing session in six on signs that the standoff in Washington could end this week.
December gold (GCZ3) was last down $5.50, or 0.4%, at $1,271.10 an ounce on the Comex division of the New York Mercantile Exchange. Prices were poised for their fifth losing session in six. They gained 0.7% on Monday after closing at a three-month low on Friday.
Silver for delivery in December (SIZ3) also turned south, off 21 cents, or 1%, to $21.14 an ounce after tacking on 0.5% a day earlier.
"The markets continue to confirm the optimism of a deal being reached imminently," said Peter Hug, global trading director at Kitco Metals Inc., in emailed comments on Tuesday.
"Physical demand continues to be robust from China, but has dropped sharply in Europe and North America, and [exchange-traded fund] outflows continue to add supply to a weak bid."
Shares of the SPDR Gold Trust ETF (GLD) inched down by 0.3% Tuesday morning. The iShares Silver Trust (SLV) also fell 0.5%. But mining shares moved up, with the Philadelphia Gold and Silver Index (XAU) adding 0.1%.
On Monday, gold futures bounced off three-month lows, but they eventually closed off session highs as optimism on the shutdown front took some of the shine off the precious metal. Senate Majority Leader Harry Reid said on Monday he was "very optimistic" about concluding a deal "this week" to raise the debt limit as well as end the government shutdown. Sen. Mitch McConnell, the Republican minority leader, said he shared Reid's feeling that "we'll get a result that's acceptable to both sides."
On Tuesday, House Speaker John Boehner said House Republican leaders are "working with our members on a way forward."
For the short term, the expectation is that we will get past the shutdown and past the debt ceiling and against that backdrop, "bonds are looking to have put a top [in] and if you are a good trader you know the next move is for bonds down," said Yves Lamoureux, president of Lamoureux & Co., a market advisory firm based on behavioral economics. "That means lower gold."
On Tuesday, with the benchmark 10-year note (10_YEAR) yield, which moves in the opposite direction to price, up 1.5 basis points to 2.709%.
The hopes that U.S. lawmakers will break the deadlock also supported the dollar, which in turn added more pressure on gold prices. Dollar-denominated commodities tend to move lower on a stronger U.S. currency as they get more expensive to other currency holders.
Sell the rumor, buy the news?
Gold could recover once Washington actually reaches a deal, according to Kitco's Hug.
"We may get a 'sell the rumor, buy the news' bounce on the metals, as a deal will refocus the market on the continued global easing policies of the central banks," he wrote.
On the other hand, a deal to raise the debt ceiling could prompt the Federal Reserve to delay tapering of its bond-buying program, also known as quantitative easing.
Eric Green, global head of rates, foreign-exchange and commodity research at TD Securities, said that a good outcome, with the government avoiding a debt default, would "push the normalization of [monetary] policy further in to the future" and ultimately raise the "possibility that tapering turns more aggressive when it does start."
In turn, that raises the potential for more volatility, which "may handicap the Fed's capacity to organize a withdrawal from QE within a market fixated on the flow effects of Fed purchases," said Green in a note Tuesday.
The QE program has helped support gold as QE tends to pressure the dollar and can lead to inflation. Gold is often seen as a hedge against inflation.
Elsewhere in metals-futures trade, December high-grade copper (HGZ3) was roughly unchanged at $3.30 a pound, while January platinum (PLF4) gave up $2.50, or 0.2%, to $1,381.30 an ounce. December palladium (PAZ3) lost $8, or 1.1%, to $707.25 an ounce.
-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
10-15-13 1223ETCopyright (c) 2013 Dow Jones & Company, Inc.