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Gold tumbles; rally gets doused by US budget, Fed jitters

AP

Gold plunged Thursday, settling nearly 3 percent lower after mixed U.S. economic data lifted the dollar and stoked expectations that the Federal Reserve could reduce its huge stimulus program as early as next week.

U.S. retail sales rose 0.7 percent in November, while initial jobless claims rose 68,000 to 368,000 last week, the largest weekly increase since November 2012.

The steady stream of fairly positive data, coupled with news of a bipartisan budget agreement reached late on Tuesday, was seen as a sign the U.S. central bank could start trimming its $85 billion monthly bond purchases at its Dec. 17-18 meeting, or at the latest in January or March next year.

Spot gold fell to a session low of $1,224.60 an ounce and was last down 2 percent to $1,226 an ounce. U.S. gold futures for February delivery settled 2.6 percent lower at $1,224.90 an ounce.

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"The weakness seen in the morning, due to the U.S. budget deal talk, has been (exacerbated) by U.S. data showing more strength in the economy and supporting the dollar,'' said Georgette Boele, commodity analyst at ABN Amro.

"The budget talk brings a possible tapering next week closer, or at least the perception that it will happen.''

Expectations that the Fed will taper its stimulus program have helped knock gold 25 percent lower this year. Ultra-loose monetary policy is seen as bullion-friendly, as it keeps interest rates at rock bottom while stoking inflation fears.

The slump on Thursday saw gold erase the gains it had made earlier in the week—prices reached a three-week high of $1,267.26 on Tuesday. The brightening U.S. economic picture and a stronger dollar, up 0.3 percent versus a basket of currencies, punctured the rally.

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