Gold price hits three-month low on US deal hopes

LONDON - The price of gold reached the lowest level in three months on Tuesday as hopes of a deal to avert a US default hit the precious metal's safe haven status.

In afternoon trade on London's benchmark FTSE 100 index, gold hit $1,251.84 an ounce - the lowest point since July 10.

"Renewed reports of movement in the US budgetary dispute have resulted in the gold price shedding" recent gains, Commerzbank analysts said in a client note.

"If contrary to all expectations the US should default, this is likely to result in a leap in the gold price, while an agreement would doubtless lead to increased pressure to sell," they added.

With the threat of a debt default looming, Senate leaders on Tuesday appeared close to a deal to avoid a self-inflicted political calamity that would shred US credibility and rock the global economy.

But if Congress does not raise the US$16.7 trillion debt ceiling by Thursday, the US government will begin to run out of money and could start defaulting on its obligations for the first time in history.