December 28, 2012 / 11:26 AM / 5 years ago

PRECIOUS-Gold down on day, week amid last-ditch US budget talks

* Palladium hits fresh March highs; platinum sinks to August
    * Spot gold, futures down half a pct, wiping out weekly gain
    * Markets on tenterhooks as Obama calls last-ditch budget

 (Adds moves in platinum, palladium)
    By Barani Krishnan and David Brough
    NEW YORK/LONDON, Dec 28 (Reuters) - Gold fell on Friday,
wiping out what would have been its first weekly gain since
November, as traders priced the market lower while awaiting the
outcome of last-ditch U.S. budget talks ahead of a year-end
    Palladium saw the sharpest move of the day. After hitting
fresh early March highs, it gave back two-thirds of Thursday's
gains as funds took profits. Platinum sank to four-month lows.
    Most markets were on tenterhooks as President Barack Obama
met with congressional leaders from the Democratic and
Republican parties at the White House to restart stalled talks
on the budget. 
    The dollar rose, U.S. Treasury yields hit two-week lows and
stocks on Wall Street headed for their longest losing streak in
three months as the politicians sought to avoid $600 billion in
tax increases and spending cuts set to take effect on Jan. 1.
    Failure to reach a deal will tip the U.S. economy over a
"fiscal cliff" and into possible recession, economists warn.
    Spot gold ended the day close to its day lows around
$1,655 an ounce, versus Thursday's last bid at $1,663.29.
    U.S. gold futures for February delivery settled down
$7.80, or 0.5 percent, at $1,655.90 an ounce in New York.

    Traditionally a safe haven and inflation hedge that
investors rush to in times of trouble, gold has lately behaved
more like a risk asset - often rising and falling with the stock
market and sometimes following the dollar.
    Spot gold and futures showed a modest loss on the week after
Friday's decline wiped out gains built from Monday through
Thursday. Despite the somewhat surprising swing, most dealers
found this week's moves in gold too puny for a market that had
been modeled as a key hedge to the U.S. fiscal crisis.
    "It strikes me that the gold market really doesn't quite
know where to go at this moment," said Adrian Day at Adrian Day
Asset Management in Annapolis, Maryland.
    "Light trading in the holidays obviously has a distorting
effect on prices but if anything, the moves should be
exaggerated, not muted like this."
    In Friday's session, volume in gold futures was around 60
percent below the 30-day average, making it one of the least
traded markets on the 19-commodity Thomson Reuters-Jefferies CRB
    Although they have moderated now, gold prices ran up sharply
in the first and third quarters of this year, aided by
ultra-loose monetary policies in the world's leading economies,
bullion buying by central banks trying to diversify foreign
reserves and concerns over the financial stability of the euro
    The rally in those quarters has booked a 6 percent gain on
the year, extending gold's winning streak to a 12th consecutive
    Analysts said heavy profit-taking in gold over the past
month as some bullion owners try to cash in this year's gains
may be offsetting any rally culminating from those buying gold
as a safe haven.
    "The 'fiscal cliff' only tells one half of the story in gold
right now," said Edmund Moy, chief strategist at Morgan Gold in
Irvine, California.
    "The reality is a lot of supply has come on to the market in
the last month, mainly due to people selling gold for profit to
avoid higher capital gains taxes next year. The additional
supply, combined with the fiscal uncertainties, is causing the
flattish market," he said.
    The industry-backed World Gold Council said it expected the
rally in bullion to extend into 2013, helped by growing demand
for gold in China and India. 
    India, the world's biggest buyer of gold, was stocking
aggressively for its traditional festive and wedding season, but
traders said retail and investment demand for bullion remained
    Platinum and palladium made the biggest moves of the day
among precious metals. After initially extending recent gains
and hitting fresh ten-month highs, palladium sank 2
percent to $692.47 per ounce.
    Its largest drop in a month wiped out most of Thursday's
rally to highs last seen in mid-March. The market has been on a
bullish trend since Nov. 13 when refiner Johnson Matthey
projected the biggest supply deficit in 11 years in the metal
largely used an auto catalyst. 
    "Funds have been after palladium ever since that JM report
came out. There was very, very heavy buying yesterday, led by
undisclosed fund out of London," said Frank McGhee, head
precious metals at Integrated Broking Services in Chicago.
    Platinum eased 1 percent to $1,516.50 after hitting
its weakest level since end-August at $511.75.
    Platinum prices have been on the defensive as concerns about
supplies from top producer South Africa have faded since the
sprawling worker strikes that halted production at many major
mines in late October.
    On charts, platinum's relative strength index (RSI) fell to
30 on Friday, which is often seen as technically oversold.
    "At this point, if there's any other pressure on platinum,
it could see a fairly vicious break down. There's really nothing
to hold the market up," McGhee added.
    Silver was down 0.5 percent at $30 an ounce.

 (Additional reporting by Lewa Pardomuan in Singapore; editing
by Dale Hudson, Marguerita Choy, G Crosse)
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