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Gold On Track for Twelfth Annual Gain

Release Date: 
Saturday, December 29, 2012

Gold prices have increased more than six percent this year and are on track for their twelfth annual gain. The precious metal was $0.70 lower this week, settling at $1,657.30 per ounce at 2:15 PM Pacific Time at the New York Spot Market close, while silver was $0.07 higher, closing at $30.13 per ounce.

Gold traders are the most bullish in four months, according to a Bloomberg survey. Fifteen of 19 analysts surveyed expect prices to rise next week.

Uncertainty over the fiscal cliff persisted throughout this week. 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.

Peter Fertig, analyst with Quantitative Commodity Research, commented on the imminent budgetary deadline. “Now it is looking like the U.S. economy might head to a fiscal cliff…if there is no agreement, and people don't know what is happening with the economy, the safe haven status of gold could re-emerge," he said. Fertig noted that if the politicians manage to reach a timely agreement, “gold will go up” along with other assets.

"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.

Colin O’Shea, head of commodities at Hermes Investment Management Ltd. in London, which manages about $2.3 billion of raw-material assets, said “a resolution of the fiscal cliff in some form could provide a short-term impact on the market. We may see increased inflation going forward which will bode well for commodities.”

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.

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.

TD Securities (TDS) said gold prices should reach a new record high in 2013. “Gold looks promising and the yellow metal will hit a peak of $2,000 an ounce before the end of next year,” TDS said.

TDS believes central banks will continue supporting gold. “With Western central-bank stimulus, particularly the Fed, and stronger Chinese performance, the metals complex should move smartly higher, particularly precious metals,” TDS noted. The firm sees inflation as a growing risk if policy-setters wait too long to drain liquidity from the financial system.

Central banks are also expected to support gold is through official-sector buying, perhaps acquiring as much as 525 tons of gold next year, TDS estimated.

The Fed’s recent decision to ramp up QE “represented a major escalation in its monetization of debt and is likely to continue through 2013 and well beyond,” said Brien Lundin, editor of Gold Newsletter. In Europe, “we should see the realization that very significant money printing will be necessary to address the union’s massive debt woes,” he said. Gold may exceed $2,000 per ounce and silver may approach $40 per ounce next year, Lundin said.

Chris Mayer, managing editor of Agora Financial and editor of newsletter Capital & Crisis, agreed that gold can easily top $2,000 per ounce in 2013.

“The problems we’ve seen over the last year haven’t disappeared,” said Thorsten Proettel, a commodities analyst at Landesbank Baden Wuerttemberg in Stuttgart. “There is still lots of potential for trouble in the world and that is a good reason for people to stay in gold or buy more.”

(Sources: “Gold Bulls Strongest Since August as Funds Retreat: Commodities,” Bloomberg, December 28, 2012; “Gold futures ease ahead of fiscal-cliff talks,” Marketwatch, December 28, 2012; “PRECIOUS-Gold dips, but heads for weekly gain,” Reuters, December 28, 2012; “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; “Gold Futures Advance on Bets Japan to Increase Stimulus Measures,” Bloomberg, December 26 , 2012; “Gold rises as dollar slips; fiscal talks in focus,” Marketwatch, December 26 , 2012; “PRECIOUS-Gold firms, U.S. fiscal fears drag,” Reuters, December 24, 2012; “Gold: Best of Both Worlds?CNBC, December 23, 2012; “Why One Gold Bull Thinks the Sell-Off Won't Last,” CNBC, December 22, 2012; “Gold, silver and oil markets hope for better year,” Marketwatch, December 21, 2012;  Gold prices dip sharply; but TDS still sees $2,000 Gold in 2013,” Commodity Online, December 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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