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Spending Levels and Dollar Weakness Seen Supporting Gold

Release Date: 
Thursday, January 3, 2013

Gold fell on a stronger dollar, giving back some of yesterday’s $13 gain on new unemployment numbers.  Gold was $6.60 lower at 8:03 a.m. Pacific Time on the New York Spot Market, trading at $1,680.00 per ounce.  Spot silver was essentially flat at $31.03 per ounce.  (Click here for the most current spot prices.)

Initial jobless claims reached a five-week high with new unemployment applications rising 10,000 to a seasonally adjusted 372,000 in the week ending Dec. 29.  Economists had forecast claims to total 360,000.  In the week ending, Dec. 22, continuing claims rose by 44,000 to a seasonally adjusted 3.25 million.

“Gold is off slightly on a stronger U.S. dollar” in reaction to jobless claims data, said Jeffrey Wright, managing director at Global Hunter Securities.  However, Wright expects the dollar to depreciate. “We believe gold is positioned to go higher in the near term with the fiscal cliff deal further weakening U.S. dollar over time…The way I see it is, [the fiscal cliff] package increased taxes and spending with zero emphasis on reigning in spending. Over time, this will put more pressure on U.S. dollar and enhance gold.”

Warren Gilman, Chairman and CEO of CEF Holdings, said “I think 2013 will see gold continue to rise.  The result we had with respect to the fiscal cliff debates just pours a lot more hot oil on that fire, with respect to no decrease in spending.  A $16.4 trillion debt ceiling [will rise].  We’re going to have to print substantially more U.S. dollars and it seems like every economic group from the U.S. to the Euro zone to Japan can’t debase their currency quickly enough.  They’re all racing to the bottom and the one sure beneficiary of that is gold in the medium to long term.”

Bill Gross, CEO of PIMCO and founder of the world’s largest bond fund, believes gold and other commodities will move higher this year, while stocks and bonds will see lower returns and unemployment will rise. 

“Generally all asset markets are in this period going forward, in which less than double-digit returns are going to be the order of the day,” Mr. Gross noted.  “We have come to expect in the asset markets a 10%-plus type of return for taking equity risk.  And really if the real economy only grows at 2% to 3%, then it is a case of spending straw into gold and how long that will continue.”

(Sources: “Gold futures pull back after cliff-rally,” Marketwatch, January 3, 2013; “U.S. jobless claims rise 10,000 to 372,000,” Marketwatch, January 3, 2013; “Bearish on Energy in 2013,” CNBC, January 1, 2013; “Pimco's Bill Gross: Fearless 2013 Forecasts,” CNBC, December 31, 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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