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Fiscal Cliff Result Could Drive Gold Higher in Short or Long Term

Release Date: 
Thursday, November 29, 2012

Gold traded higher today as analysts weighed the potential implications of the fiscal cliff for the precious metal. The price of gold was $5.30 higher at 9:05 a.m. Pacific Time on the New York Spot Market, trading at $1,726.10 per ounce. Spot silver was $0.42 higher at $34.29 per ounce. (Click here for the most current spot prices.)

Protracted talks on the fiscal cliff could increase risk aversion and drive purchases of safe haven assets such as gold. However, in the short term, a quick resolution can also support the precious metal, according to Caroline Bain of the Economist Intelligence Unit. "It could be positive for gold whichever way the negotiations go, but a rally on a speedy resolution might be quite a short-term positive, whereas any risk of prolonged sovereign stress could be a longer-lasting positive."

“The U.S. still faces the fiscal cliff which, no matter what happens, is bullish for gold,” said David Beahm, vice president at precious-metals investment firm Blanchard & Co. “The debt ceiling is about to be breached; more and more people are relying on the government for assistance; interest rates remain extremely low; the Middle East is on the verge of war; Europe is in an even more dire situation than the U.S. - all of this is bullish for gold and will not change for a long time…Gold is up over $20 from yesterday’s low. This trend will continue for the rest of this year and into 2013.”

“The whole environment around the fiscal cliff is very uncertain,” said Bjarne Schieldrop, the head of commodity research at SEB AB. “The fiscal cliff will be on and off every other day. Most likely it won’t be resolved before the first quarter, but I think that the general direction for gold will be up.” He cites record levels of gold investment holdings and central bank buying as other factors providing good support for gold.

Nick Trevethan, senior commodities strategist at ANZ bank said “the factors supporting gold really haven’t gone away. You still have large amounts of liquidity in the system, you’re seeing central banks trying to support markets.”

Gold prices could be at $1850 per ounce in the first quarter of next year while silver may average $35 per ounce, Barclays Capital wrote in a research note.

Thomson Reuters GFMS expects silver may trade up to $36 per ounce before the 2012 year-end and possibly more than $50 per ounce during 2013.

(Sources: “PRECIOUS-Gold rises with stocks on optimism over US fiscal cliff,” Reuters, November 29 2012; “Gold Rebounds on U.S. Budget Optimism, Record Investor Holdings,” Bloomberg, November 29, 2012; “Gold futures rebound after big selloff,” Marketwatch, November 29, 2012; Silver to average $35/Oz in Q1 2013; Gold $1850/Oz,” Commodity Online, November 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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