Gold and silver set for second weekly loss on signs a US debt deal may be reached

October 11, 2013

LONDON (Oct 11)    Gold and silver were on course for a second weekly decline on Friday as signs the U.S. budget impasse might be heading towards a resolution lifted the dollar and curbed the metal's safe-haven appeal.

Republican lawmakers, who have not passed budget funding, on Thursday offered a plan that would extend the U.S. government's borrowing authority for several weeks. If accepted by Democrats, that would stave off a U.S. default that could otherwise occur as soon as Oct. 17.

Spot gold was steady at $1,285.60 an ounce by 1009 GMT, after dropping for three straight sessions. The metal was down 1.9 percent on the week and headed for its sixth weekly decline in seven weeks.

The last time there was high tension over talks to lift the U.S. debt ceiling, in 2011, gold hit record highs. But this year sentiment towards bullion is much less positive and it has held in narrow ranges during budget talks over the past week as investors saw little chance the ceiling would not be raised, analysts said.

The metal has lost a fifth of its value this year on expectations the U.S. Federal Reserve will end its stimulus programme which has kept interest rates low and stoked inflation fears.

"You had a very short-lived move higher on the back of the debt ceiling talks but ... the market just discounts a lot of the bullish news at the moment, looking at the improving underlying economic picture," BofA Merrill Lynch analyst Michael Widmer said.

"It happened already earlier in the year, there were few events that were potentially bullish for the market, the Cyprus crisis among those, and gold didn't react at all ... you have these short-term pops every once in a while but I think the market continues to look beyond that."

The dollar held just below two-week highs against major currencies, while European stocks inched up, extending the previous day's rally.

Soft physical demand, a lack of economic data and outflows from gold-backed exchange-traded funds (ETFs) have also dragged on prices throughout the week.

"Physical buying is fairly non existent at these levels, funds are staying clear and even the most diehard bulls are having problems coming up with a reason to buy gold, given its totally lacklustre performance as of late," Marex Spectron said in a note. "As I have said before, once the U.S. resolves its problems, which it will, we head lower."

The gold holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 0.2 percent, or 1.80 tonnes, to 896.38 tonnes on Thursday. That marked a fresh four-year low.

The ETF, seen as a good measure of gold investor sentiment due to the amount of bullion it holds, has seen outflows of about 400 tonnes this year.

Silver fell 0.6 percent to $21.49 an ounce on Friday.

Spot platinum was little changed at $1,381.29 an ounce. It showed little reaction to news that striking workers at Anglo American Platinum had returned to work as the market expects more mining disruptions in leading platinum producer South Africa.

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