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Terrible Fundamentals, Not Government Shutdown, Sink Gold (Update 1)

Stocks in this article: GLD IAU ABX GFI

Updated from 11:12 a.m. EDT with BullionVault's Gold Investor Index results for September

NEW YORK (TheStreet) -- Gold prices were sinking, a surprise  to many traders Tuesday, as a confluence of negative fundamentals outweighed the boost investors expected from a government shutdown.

Gold for December delivery at the COMEX division of the New York Mercantile Exchange was tumbling $30.10 to $1,296.90 an ounce. The gold price traded as high as $1,337.80 and as low as $1,284.30 an ounce, while the spot price was sinking $41.15 to $1,287.35.

A number of investors got long on the back of the anticipation of a looming government shutdown and looked at asset allocations at the beginning of a new quarter and decided to pour into the S&P 500, which easily has outperformed commodities, said Graham Leighton, a trader at Marex Spectron. The SPDR Gold Trust (GLD) saw more selling in September, while the U.S. Mint reported that American Eagle gold coin sales in September were down 80% from July.

"The initial move lower this morning was really people getting out of longs they put on because of the government," said Leighton. "You add that all up and it's a pretty poor picture."

Gold rose 8.3% in the third quarter.

Buying interest in physical gold slipped in September as retail investors chose silver's reduced cost against the yellow metal, BullionVault -- the world's largest online physical provider of precious metals -- reported Tuesday. Its Gold Investor Index dropped to 53 from 53.8 the prior month. Any reading above 50 indicates more buyers than sellers in the market.

Silver dropped 7.7% in September, while gold fell 5% in the same month.

Silver prices for December delivery were dropping 99 cents to $20.72, while the U.S. dollar index was slipping 0.1% to $80.15.

Gold mining stocks were firmly in the red on Tuesday, in line with the decline in gold. Shares of Gold Fields (GFI) were losing 3.5% after announcing that it completed acquisitions of Barrick Gold's  (ABX) Granny Smith, Lawlers and Darlot gold mines in Western Australia. Shares of Barrick were down 3.9%.

SPDR Gold Trust was sliding 3% to $124.35 a share, while iShares Gold Trust (IAU) was decreasing 3% to $12.50 a share.

-- Written by Joe Deaux in New York.

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