Gold hovered near three-month low on Monday as investors chose cash over safe-have assets as the US fiscal impasse remained unresolved, while large sell orders rattled market sentiment.
Spot gold ticked up 0.02% to $1,272.85 an ounce by 0635 GMT after falling 1% on Friday when large sale
orders in New York futures prompted a near $30 drop in prices in about three minutes and a brief trading halt.
Gold has fallen for the past four sessions.
"People are worried about the US situation and their first reaction is to hold cash and only then they look at safe haven assets like gold," said one Hong Kong-based precious metals trader.
"That is why if the US doesn't find a solution, gold will be sold initially."
Gold hasn't seen a lot of safe-haven bids over the last two weeks, when parts of the US government have been shut down due to the budget impasse.
Instead, prices have been hurt by large sell orders - most likely from funds - that some believe to be amplified by technical selling. Earlier this month, another big trade sent prices lower by $25 an ounce in a short period of time.
"Investors are on the sidelines. There seems to be a little bit of speculative appetite to the downside right now," said another trader.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and the best measure of investor sentiment, fell 5.40 tonnes to 890.98 tonnes on Friday.
FISCAL IMPASSE, TAPERING
Senate negotiations to bring the US fiscal crisis to an end showed signs of progress on Sunday, but there were no guarantees the US government shutdown was about to end or that an historic default would be avoided.
Congress has until Oct. 17 to raise the debt ceiling, or risk defaulting.
"If resolved by Thursday, gold will take a bearish cue and will look to tapering and monetary policy stance for direction," said Barnabas Gan, analyst at OCBC Bank in Singapore.
Many in the market now expect the Fed to begin stimulus tapering only after the uncertainties over the US budget are resolved.
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