Gold Prices Roiled by 'Fiscal Cliff' Standstill (Update 1)

Updated from 11:02 a.m. ET with settlement prices

NEW YORK ( TheStreet) -- Gold prices plummeted Tuesday as "fiscal cliff" concerns continued to smack the yellow metal to one-month lows.

Gold for February delivery dropped $25.30 to settle at $1,695.80 at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,719.20 and as low as $1,692.60 an ounce, while the spot price was losing $20.50, according to Kitco's gold index.

Gold traded at $1,704.50 an ounce on Nov. 15, which marked the lowest level for the commodity in four weeks.

"Gold prices broke to under the pivotal $1,700 mark overnight, and did so despite a slightly weaker US dollar, despite a firmer euro, but alongside almost 1% weaker crude oil values," Jon Nadler, senior analyst at Kitco Metals, noted Tuesday morning.

Nadler noted that an overall slide in commodities and the continued stall in negotiations over the so-called fiscal cliff -- when tax relief measures and deep spending cuts will automatically go into effect at the beginning of 2013 -- were responsible for the four-week low.

Silver prices for March delivery sank 95 cents to close at $32.81 an ounce, while the U.S. dollar index was dropping alongside the precious metals by 0.30% to $79.65.

House Speaker John Boehner emerged Monday afternoon with a plan from Republican leaders that outlined $2.2 trillion in deficit reduction over the next 10 years, and a proposal to raise $800 billion in new revenue. It was a counter-proposal to President Obama's plan, which the GOP had flatly rejected.

With the two plans on the table, Republicans and Democrats effectively have staked their opening moves, but this has also given little confidence from investors.

It should not come as too much of a surprise to traders as many market analysts and political strategists have said that they did not expect an immediate solution to the "fiscal cliff." Nor have many expected a full deal by the end of the year. Instead, a fleshed-out budget, complete with detailed spending cuts and tax increases, may not emerge as far out as a few months into 2013. A few short-term adjustments may be in store before 2013 so as to avoid fallout from a full "cliff."

Manufacturing reports from the United States and China printed Monday. The Institute for Supply Management's manufacturing index for the U.S. crept below 50 -- anything under that number constitutes a contraction in the industry. China's PMI came in slightly above 50, but failed to bolster confidence that manufacturing was trending decidedly in a positive direction.

Gold-watchers may be keeping an eye on employment numbers for the rest of this week as the ADP employment report -- a record produced from a subset of ADP payrolls of some 24 million employees who work in private industrial sectors -- weekly jobless claims and the monthly employment situation are released.

Employment numbers are a macro-economic indicator that many investors use to gauge the overall health and outlook of the economy. In theory, improving employment reports hit gold prices as people would likely retreat from the yellow metal as a safe haven. Gold prices can benefit in light of poorer labor reports as some see the precious metal as a haven investment against recession. Ultimately, though, investors often view gold as a hedge against inflation. So labor reports don't always move gold decidedly in one direction or another.

The Federal Open Market Committee, which determines the Federal Reserve's monetary policy, will report its latest forecasts on Dec. 12. This could give gold investors a better clue as to what actions the Fed may take as it pertains to the expiration of Operation Twist at the end of the year, and the open-ended, mortgage-backed security purchasing program the Fed announced in September. The market generally views both actions as inflationary policy as it requires the bank to flood the system with more liquidity.

Gold mining stocks were mixed on Tuesday. Shares of Agnico-Eagle Mines ( AEM) were dipping 2.2%, but shares of Goldcorp ( GG) were adding 1.9%.

Among volume leaders, Newmont Mining ( NEM) was slumping 0.36%, as Kinross Gold ( KGC) was climbing 0.51%.

Gold ETFs SPDR Gold Trust ( GLD) and iShares Gold Trust ( IAU) were retreating 1.1%, a relatively large drop for the exchange-traded funds, and in line with gold's big Tuesday selloff.

-- Written by Joe Deaux in New York.

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