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Fiscal Cliff Deadline Looms

Release Date: 
Thursday, December 27, 2012

The price of gold was modestly higher as prospects dim that Washington will avoid falling over the fiscal cliff.  Gold was up $3.00 at 9:30 a.m. Pacific Time on the New York Spot Market, trading at $1,663.40 per ounce.  Spot silver was up nearly 1%at $30.41 per ounce.  (Click here for the most current spot prices.)

House Speaker Boehner urged the Senate to act on a plan to avoid the fiscal cliff while the President cut short his vacation to continue negotiations. The failure to reach an agreement will result in $500 billion in automatic spending cuts and tax increases commencing in January.

Adding to the budgetary distress, the Treasury Department said the government will reach its legal borrowing limit by Monday, December 31, triggering emergency measures to keep the government operating. 

"If the politicians reach an agreement on the fiscal cliff, the dollar could suffer and there could be more investment into gold," said Afshin Nabavi, head of trading at MKS Finance.  A failure to resolve the fiscal cliff could spur buying of safe haven assets, potentially supporting gold.

A senior analyst with Singapore securities company UOB Kay Hian said the major credit ratings firms may downgrade the U.S. credit rating, prompting investors to move from dollars to gold.

Investors will monitor the release of U.S. weekly jobless claims data today. Economists forecasted a total of 360,000 new claims compared with 361,000 in the prior week.

Gold demand in India remained strong on Thursday as jewelers were restocking for a festival. 

(Sources:  “Gold Lower in Asia, Precious Metals Mixed in Thin Trade,” Wall Street Journal, December 27, 2012; “PRECIOUS-Gold dips, focus on U.S. budget talks,” Reuters, December 27, 2012; “Gold Edges Higher on Budget Talk Hopes, Japan Easing View,” Wall Street Journal, December 26, 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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