Gold shrugs US debt deal, approaches record levels after dismal economic figures

Gold futures lost over $16 early on Monday after US lawmakers and the Obama administration reached an 11th-hour agreement on raising the federal debt ceiling, but quickly pared the losses after data showed manufacturing activity at its lowest level in two years in the US and shrinking factory output in China.

December gold initially retreated from the record settlement of $1,631.20 an ounce on Friday, trading as low as $1,608.20 before jumping back to within striking distance of record levels at the same time New York stock markets suffered a 200-point reversal, turning triple digit gains into a sharp sell-off spooked by the economic data.

Gold set a a string of records over the last few weeks as the debt-ceiling deadline approached and fears about a US debt downgrade intensified combined with the spread of the Europe debt crisis from Greece to Spain.

The gold price remains well below the previous record high for gold set on Jan. 18, 1980 – when adjusted for inflation the precious metal traded at $2,400 an ounce at the time.

The Institute for Supply Management reported Monday its index, a gauge of manufacturing activity, fell to 50.9 in July. A reading above 50 indicates expansion and analysts expected a reading of 54.3 for the month. In China, a similar survey – the monthly purchasing managers index fell to 49.3, its lowest reading since March 2009, compared with 50.1 in June, according to data from HSBC, an investment bank.