Gold tumbled to its meanest in three months in intraday trade on Tuesday as hopes of a resolution to the partial US government shutdown fired up stock markets, hurting interest in the safe-haven appeal of the precious metal.
Spot gold fell 1.34% an ounce to $1,255.40 at 6:52 ET and December US gold futures shed $22.60, or 1.77%, an ounce at $1,254. In Delhi, gold dropped by R225 to R30,550 per 10 grams, tracking the weak global sentiment.
Asian shares hit five-month highs and European shares gained for a fourth straight session while the dollar index firmed on expectations that lawmakers in the world's largest economy may hammer out a deal to end the impasse over government debt to avert defaults. Giving hope, US Senate majority leader Harry Reid, a Democrat, said on Monday after a day of talks with his Republican counterpart, Mitch McConnell, that they had made "tremendous progress" and suggested a deal could come later on Tuesday, according to Reuters.
Gold prices have crashed by around a quarter this year, mainly on apprehensions that the Fed might curtail its bond purchases before the end of 2013. Uncertainty over the timing of the move had also stoked volatile trading. Concerns that the US may hit the $16.7-trillion debt ceiling on October 17, however, had driven some rally in safe-haven gold recently when the political deadlock caused a partial shutdown of the government.
However, physical demand from India and China, the world's top consumer, have remained weak for weeks now even though Indian jewellers have gradually started building inventory to cater to upcoming festive demand.
Still, purchases are unlikely to shoot up significantly due to a 10% import duty on gold when the rupee remains weak, taking the sheen off the metal.
Moreover, gold imports by India, the world's biggest consumer, dropped 79% in the three months through September to $3.5 billion from the quarter before following a series of official crackdowns, including a hike in the import duty to 10% from 8% and confusion over the latest norms for purchases from overseas.
India's gold imports dried up after the Reserve Bank of