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Analysts Say Fiscal Cliff May Support Gold

Release Date: 
Monday, October 8, 2012

The price of gold fell on improved U.S. employment data released late last week. Gold was $8.10 lower at 7:28 a.m. Pacific Time on the New York Spot Market, trading at $1,774.20 per ounce. Spot silver was $.57 lower, trading at $34.04 per ounce. (Click here for the most current spot prices.)

"The good non-farm payrolls number raises doubts on whether QE3 (quantitative easing) will sustain and puts pressure on gold in the short term," said Li Ning, an analyst at Shanghai CIFCO Futures. "The medium to long-term outlook is still bullish," Li added. "The continuous safe-haven demand, as well as lack of confidence in paper currency, will probably push gold to a new high later this quarter or in the first quarter next year."

Paul Horsnell, head of commodities research at Barclays, said “quantitative easing for us is not the rising tide that lifts all boats, it's not as straightforward as loose monetary policy must lead to higher commodity prices, with perhaps one exception….It is good for gold."

Nataxis analyst Nic Brown believes investors will closely monitor the U.S. economy as the fiscal cliff of mandatory spending cuts and tax increases approaches. "What will probably be just as important as QE3 is what happens with this fiscal cliff," he said. "In 2011, the peak in gold prices was related to the inability of Congress to raise the debt ceiling. It wasn't just QE that was pushing it, but the perceived deterioration in the U.S. fiscal position.” Mr. Brown added, "if the market gets it into its head that the U.S. has a problem just like Europe, gold prices could push significantly higher. That will ultimately be the determining factor."

Triggering the fiscal cliff "will mean more stimulus, and that might be another leg up for gold,” said Pau Morilla-Giner, chief investment officer at London & Capital, In six months time, we might see gold flirting with $1,900 or $1,950."

Strategists at Deutsche Bank expect “fears toward the fiscal outlook will intensify in the fourth quarter, along with the possibility of a U.S. credit downgrade event.” They noted in a report, “this will prove to be most beneficial to the precious metals complex and specifically gold.”

(Sources: “PRECIOUS-Gold dips as upbeat US jobs data saps buying interest,” Reuters, October 5, 2012; “Gold, silver keep losses after payrolls,” Marketwatch, October 5, 2012; “Analysis: Investors opt for gold ahead of U.S. "fiscal cliff,” Reuters, October 5, 2012; “PRECIOUS-Gold comes off 6-1/2 month peak hit on banks' stimulus,” Reuters, September 19, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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