Gold settled 2 percent lower on Friday after an unusually large trade in the New York futures market prompted jittery investors to flee the bullion market on signs a deal might be near to avert a potential U.S. debt default.
The precious metal, generally viewed as a safe haven investment, fell abruptly in early U.S. trading, with prices falling $30 an ounce in just minutes. Losses were also accelerated by technical stop-loss selling orders after gold fell below key support near $1,275.
Spot gold was down 1.5 percent to $1,267, having earlier fallen as much as 1.8 percent to its lowest since July 10 at $1,262.14 an ounce. U.S. gold futures for December delivery settled 2.2 percent lower at $1,268.20 an ounce.
Gold's sudden slide sparked sell-offs in crude oil and copper futures, although they have since trimmed losses.
On Friday, President Barack Obama and congressional Republican leaders moved to end their fiscal impasse but struggled to strike a deal on the details for a short-term reopening of the federal government and an increase in the U.S. borrowing limit.
"If there is a temporary stop-gap measure to avert a disaster of U.S. default, it will lead to gold market going even lower,'' said Jeffrey Sica, chief investment officer of Sica Wealth, which manages over $1 billion of client assets.
Gold's sudden price tumble was a result of hedge funds and institutional investors flooding the gold futures market with sell orders, traders said.
U.S. gold futures trading was momentarily halted at 8:42 a.m. EDT by CME Group's Stop Logic mechanism to prevent excessive price movements.
In the three minutes around the ten-second trading pause, gold prices slid almost $30, or about 2 percent, with an unusually heavy turnover at nearly 20,000 contracts - about one-fifth of the market's volume at the time.
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