Likelihood of a third round of quantitative easing, QE3.

The gold price oscillated near the $1,612 per ounce level Tuesday while negotiations on Capitol Hill over the debt ceiling remain ongoing. The price of gold backed off its overnight high of $1,617 per ounce despite weakness in the U.S. dollar. The euro climbed to 1.45 against the greenback on fears that the U.S. currency will lose its AAA rating if a deal to raise the $14.3 trillion debt ceiling is not reached by the August 2 deadline.

UBS, in a note to clients, discussed the implications of the debt ceiling negotiations on the price of gold. “With little optimism on U.S. debt talks at the moment, the gold price acutely reflects investor nervousness that limited progress will be made before the Aug. 2 deadline,” the firm wrote. “This nervousness is in many ways justified as the threat of a U.S. ratings downgrade is very real.”

While Federal Reserve Chairman Ben Bernanke is likely a bit relieved to be out of the financial spotlight for a change this week due to the immediacy of the U.S. debt ceiling deadline, the impact of U.S. fiscal policies in the weeks ahead could very well increase the likelihood of a third round of quantitative easing, QE3.