NEW YORK: Gold fell almost 1 percent on Friday, headed for its second consecutive monthly decline as investors worried that the US fiscal crisis could slow the economy, and as end-of-month profit taking prompted a flurry of sell orders.
Gold's drop accelerated after Republican US House of Representatives Speaker John Boehner said lawmakers from his party and Democratic President Barack Obama are in a stalemate over a budget deal needed to avoid a $600 billion "fiscal cliff" of automatic tax hikes and spending cuts.
Some institutional investors lightened their gold holdings, worried that failure to reach a budget deal could trigger a US recession, undermining gold's appeal as an inflation hedge.
"There is a significant amount of industry selling in anticipation of higher taxes related to the fiscal cliff," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
"On the other hand, there is a fair amount of retail buying, but in this case Wall Street tends to win," McGhee said.
Spot gold was down 0.8 percent at $1,711.04 an ounce, heading for a 2.3 percent weekly drop, which would be its biggest weekly decline since June.
It also was on track for a 0.5 percent monthly loss for November, after a decline of around 3 percent in October.
In the retail sector, physical demand appeared strong.
November sales of US American Eagle gold coins are set to be the strongest in 14 years as uncertainty surrounding the US fiscal crisis and the presidential election triggered safe-haven buying, dealers said.
Holdings of SPDR Gold Trust GLD, the world's biggest gold-backed exchange-traded fund, stood at a record high of 1,347 tonnes, up nearly 11 tonnes in its fourth consecutive month of gains.
US COMEX gold futures for February delivery settled down $16.80 at $1,712.70.
Trading volume was around 135,000 lots, about 30 percent below its 250-day average, preliminary Reuters data showed. Turnover was sharply lower after it hit a record high at 486,315 contracts on Wednesday, CME data showed.
Among other precious metals, silver fell 2.7 percent to $33.30 an ounce. Platinum eased 0.8 percent to $1595.99, while palladium edged 0.2 percent lower to $680.50.
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