Gold for February delivery at the COMEX division of the New York Mercantile Exchange was slipping $3.70 to $1,257.40 an ounce. The gold price traded as high as $1,263.20 and as low as $1,252.10 an ounce, while the spot price was off $3.35, or 0.27%.
"The agreement for the budget coming last night is pausing gold prices to see the devil in the details; this is a big month for gold as the largest roll over for the year from December to February and other 2014 trading months goes on," George Gero, precious metals strategist at RBC Capital Markets, wrote in a note on Wednesday.
The budget deal, crafted by Rep. Paul Ryan (R., Wis.) and Sen. Patty Murray (R., Wash.), sets discretionary spending for the current fiscal year at $1.012 trillion, which was between the $1.058 trillion Democrats originally desired and the $967 billion Republicans bid for.
If passed by both houses of Congress -- the GOP-controlled House hopes to vote before the end of this week, and the Democratic-controlled Senate sees a vote ahead of next week's end -- the deal would avoid a government shutdown in January and stem the effects of the sequester cuts that triggered earlier this year.
Gold markets will keep an eye on developments so as to determine if Congress -- notorious for killing budget deals in recent years -- can pass a bill in a rare gesture of bipartisanship. Gold prices often jump during political uncertainty as investors view the yellow metal as a hedge of value against turmoil.
But investors may not want to put too much stock in budget negotiations to determine long-term movements in gold prices.
Tuesday's move of more than $25 was on the back of a short squeeze as an overly shorted market that showed few signs of immediately turning below $1,200 an ounce bounced on concerns among traders uncomfortable with their positions.
But nothing has fundamentally changed and the Federal Reserve's policy-making meeting next week likely is to serve as the next major catalyst.
"Given only three weeks to go before the year ends, it is understandable that there is currently limited conviction to hold sizeable positions, and there isn't much appetite to put on a trade for too long," Joni Teves, gold analyst at UBS, wrote Wednesday in a note to clients. "Trading is bound to be increasingly cautious, with investors becoming more and more defensive."
-- Written by Joe Deaux in New York.
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