Stock Market Watch

Gold Prices Advance

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Gold prices edged up on Thursday as growing fears over how a divided Congress would reach an agreement over trimming the U.S. fiscal deficit, failure of which could seriously damage the U.S. economy, increased metals’ safe haven appeal while unchanged record low benchmark interest rates kept by the European Central Bank (ECB) and the Bank of England (BOE) bolstered metal’s inflation-hedge allure in the mid to long run.

U.S. gold futures for December delivery gained 0.7 % or $ 12 an ounce to settle at $1,726 while spot gold was up 1 % higher, trading at $1,733 an ounce.

Amid rising uncertainty over the issue of ‘fiscal cliff’, global investors are liquidating riskier assets such as equities and commodities, seeking safety in gold and the U.S. dollar. Fiscal cliff, which refers to automatic spending cuts and increase in taxes, estimated at $600 billion could potentially push the U.S. economy into recession if the lawmakers in Washington does not reach to an agreement over how to bring down the nations’ fiscal deficit by the year end.

Growing fears over macroeconomic uncertainty were evident on Wednesday when all major benchmark indexes in the U.S. slumped over 2 percent.

In a note to clients, Fawad Razaqzada, a technical analyst at GFT Markets, wrote, “Given Wednesday’s vicious sell-off in the equity markets, the gains in gold and silver suggest they are once again viewed by some as safe- haven investment vehicles rather than risk assets.”

Afshin Nabavi, head of trading at MKS Finance, said that gold’s key resistance in the near term was likely to be at $1,730 and gradually it will be at $1,750 and $1,800.

Adding some support to gold prices was the latest interest rate policy statements from the ECB and BOE. Both banks kept the benchmark interest rate unchanged. While ECB kept interest rate at 0.75% the BOE continued with base rate of 0.5%, which was not surprising according to financial markets.

An environment of low interest rate and excessive currency printing (Fed’s quantitative easing) augurs well for gold prices as fears of currency debasement burnishes metal’s inflation-hedge appeal.

“We will continue with support around $1,700 and $1,680, but before the end of the year gold should gradually rise, because we have liquidity (quantitative easing), and low yields,” said Andrey Kryuchenkov, analyst with VTB Capital while speaking to Reuters.

“Gold is displaying relative strength and living up to its reputation as a store of value and a safe haven,” wrote analysts at Commerzbank .

Nevertheless, a firmer U.S. dollar continues to limit gold gains. On Thursday the euro tumbled to a two month low against the U.S. dollar in the wake of fragile economic environment in the troubled 17-nation monetary union.

The ICE Dollar Index, a measure on U.S. Performance against a basket of six major currencies, inched up to 80.818 on Thursday from 80.781 in late North American trading on Wednesday.

As commodities are internationally priced in U.S. dollars, any strength in the greenback deters the demand from those traders who deal in foreign currencies.

Meanwhile, investors’ interest in gold backed exchange traded funds continued to soar in November. A data provided by Reuters showed that holdings of SPDR Gold Trust (ETF) (NYSE: GLD), world’s biggest gold backed exchange traded fund, reached at 1,337.205 tons as of November 7, having peaked at 1,340.521 tons   in early October.

In some other precious metal markets, silver gained 1.7 % to close at $32 an ounce. Spot platinum inched up 0.1% to settle at $ 1,540 an ounce while spot palladium edged up 0.7% to end the day at $613 an ounce.

 

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edliston
Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.

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Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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