Gold Prices Gain Marginally

Gold prices inched higher on Monday after New York Fed’s gloomy manufacturing index resulted in some short covering; however, gains were capped as optimism over possible early agreement in Washington following fruitful talks over the weekend as to the issue of “fiscal crisis” cut metal’s safe-haven bets.

Earlier during the day, the yellow metal got some support after Japan’s new Prime Minister, Shinzo Abe, called for further economic stimulating measures.

“This week may in fact already see the Bank of Japan increasing its bond purchasing program yet again, for election winner Abe (LDP) plans, among other things, to kick-start the economy and beat deflation by implementing aggressive monetary policy,” wrote analysts at Commerzbank.

Gold futures for February delivery inched up $1.20 an ounce or 0.1 percent to close at $1,698.20, having earlier dropped as low as $1,687.50 an ounce. However, the metal recovered some of its lost ground after New York’s Fed Empire State Manufacturing Survey, a measure on manufacturing activities, showed a reading of minus 8.1 in December even as economists’ consensual estimate was of minus 1.0 reading, resulting in some short covering.

Speaking to MarketWatch, Darin Newsom, senior analyst at Telvent DTN,said, “We did see a bit of short-covering come into the gold market … normally how [investors] would react to a bearish economic report.”

Spot gold was mainly flat, trading near $1,696 an ounce.

A data provided by Reuters showed that the trading volume in gold futures was below 30-day-moving-avergae.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.19% higher at $164.46.

Fiscal cliff, a series of automatic spending cuts and tax hikes, could potentially submerge the U.S. economy back into recession should the lawmakers fail to reach a consensus over how to bring down nation’s fiscal deficit by the yearend. That is the reason why investors have backed off from the bullion market lately as lack any tangible development arising out of talks in Washington, weighed on the sentiment, discouraging inflation hedge bids—regardless of Federal Reserve’s ongoing quantitative easing.

Just last week, the Fed after concluding its FOMC, announced  $45 billion worth monthly bond purchase program as long as unemployment level came down to 6.5 percent on top of its $40 billion monthly mortgage-backed asset purchase program, announced in September, sparking a small rally as investors increased inflation-hedge bids, in the backdrop of central bank’s inflationary monetary policy.

Nevertheless, the gains were quickly eroded as funds, taking advantage of sudden jump in prices, chose to book profits before the yearend while continued wrangling among congressional leaders raised fears that U.S. economy could drift edged towards the edge of ‘fiscal cliff’, putting pressure on gold prices and broader asset classes.

However, global markets cheered the latest development in Washington, after house speaker John Boehner, said over the weekend that the Republicans were ready to increase taxes on wealthy Americans, removing one big hurdle for further advancement of talks.

Although investors diluted some safe haven bids following little progress made by lawmakers in Washington, many argue that averting U.S. ‘fiscal cliff’, in fact augurs well for gold prices. This is because; business sentiment will improve significantly once lawmakers find ways to avoid drastic automatic spending cuts, which will result in better performance by equities. And gold, even though considered as safe-haven asset, has tended to track riskier assets, recently.

Moving to some other precious metal markets, palladium futures for March delivery edged down 0.5 percent to settle at $698.30 an ounce while platinum futures January contract slipped 0.4 percent to close at $1,608.50 an ounce.

Silver futures for March delivery inched down 0.1 percent to end day at $32.28 an ounce.

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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.