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Gold Drops to Four-Week Low as Commodities Fall on Budget Talks

Dec. 4 (Bloomberg) -- Gold fell to a four-week low in New York, dropping below $1,700 an ounce, as a stalemate in U.S. budget talks weighed on raw-material prices.

Commodities retreated for the first time in four days as talks over the so-called fiscal cliff of spending cuts and tax increases remained deadlocked. Gold slid about $12 an ounce in about a minute during Asian trading today, data compiled by Bloomberg show. The sell-off was probably amid “frustration” that prices remain below $1,750 and during a period of low liquidity, UBS AG said in a report. Gold pared some losses as the dollar reached a six-week low versus the euro.

“It’s more the risk aversion out of commodities which is probably having an impact on gold,” Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. Still, “there are arguments investors should buy gold on worries the U.S. economy could fall over the fiscal cliff,” he said, citing demand for a haven investment.

Gold for February delivery dropped 0.9 percent to $1,705 an ounce by 7:54 a.m. on the Comex in New York. Prices reached $1,698.50, the lowest since Nov. 6. Bullion for immediate delivery was 0.7 percent lower at $1,703.40 in London.

Holdings in gold-backed exchange-traded products climbed 1.7 metric tons to a record 2,623.4 tons yesterday, data compiled by Bloomberg show. Prices are up 8.8 percent this year as central banks from Europe to China pledged more steps to spur economic growth.

Gold may gain as businesses temper spending and stimulus falls short, John Gilbert, chief investment officer at General Re-New England Asset Management, a unit of Warren Buffett’s Berkshire Hathaway Inc., wrote in a newsletter. Buffett said in a February letter that investors should avoid bullion as it doesn’t have the potential of farmland or companies to produce wealth.

Silver for March delivery fell 1.6 percent to $33.22 an ounce. Platinum for January delivery was 1.2 percent lower at $1,594.90 an ounce. Palladium for March delivery slipped 1.2 percent to $683 an ounce.

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