Gold eases from one-year high on U.S. debt ceiling deal

By Devika Krishna Kumar and Pratima Desai

NEW YORK/LONDON (Reuters) - Gold prices fell on Wednesday from the one-year high hit in the previous session as concerns over a potential U.S. government shutdown eased and the dollar rose against the safe-haven yen.

President Donald Trump said on Wednesday he had agreed on a three-month increase in the U.S. debt ceiling with congressional leaders. If passed by the Republican-led Congress, it would avert an unprecedented default on U.S. government debt, keep the government funded for the first three months of the fiscal year beginning Oct. 1 and provide aid to victims of Hurricane Harvey.

U.S. Treasury yields rose on the news and gold fell as safe-haven demand among investors worried about a short-term default subsided.

"I think today's pare back in gains was directly related to the extension provided for three months with this debt ceiling, so we saw some of that risk premium of a U.S. government shutdown come out of the metals markets," said Phillip Streible, senior commodities broker for RJO Futures in Chicago.

Spot gold fell 0.4 percent to $1,333.44 an ounce by 3:41 p.m. EDT (1941 GMT). It touched $1,344.21 an ounce on Tuesday, its highest since Sept. 8, 2016.

U.S. gold futures eased to settle at $1,339.

The U.S. dollar, meanwhile, jumped more than half a percentage point against the Japanese yen on the debt ceiling agreement.

A lower U.S. currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand.

A standoff over the U.S. federal debt ceiling had raised alarm bells among investors who feared a repeat of 2011 when a prolonged showdown over increasing the borrowing limit and subsequent downgrade of U.S. credit quality led to a slump in the S&P 500 stock index.

"I still don't think we've seen the top in gold yet because things are quite heated with North Korea," Streible said.

Investor unease was reinforced after a North Korean diplomat warned his country was ready to send "more gift packages" to the United States as world powers struggled for a response to Pyongyang's latest nuclear weapons test.

"The concern now is that another launch could take place on September 9th, which is the (North Korea's) Independence Day," said INTL FCStone analyst Edward Meir.

"Gold is likely to move higher over the course of September, sustained by a weaker dollar and North Korean tensions ... Any further wobbles in US equities could provide further support and perhaps nudge it towards our $1390 price target."

Technical resistance is at $1,352, near the high from last September, followed by $1,376, the upper Bollinger band on the monthly charts. But the momentum indicator near zero suggests gold may be in for a period of consolidation.

Elsewhere silver fell 0.2 percent to $17.85 an ounce, platinum fell 0.8 percent to $998.25 an ounce and palladium lost nearly 2 percent to $939 an ounce.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by Louise Heavens and Tom Brown)