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UBS Sees Potential Fiscal Cliff Outcomes Supporting Gold

Release Date: 
Friday, November 16, 2012

Gold moved lower as some investors liquidated profits to cover losses in other markets including equities.  The dollar also rose, which weighed on gold today.  Gold was $5.10 lower at 8:24 a.m. Pacific Time on the New York Spot Market, trading at $1,712.00 per ounce.  Spot silver was $0.37 lower, trading at $32.33 per ounce.  (Click here for the most current spot prices.)

"Gold is being seen increasingly as a source of cash. Liquidation of gold can cover losses elsewhere," said Simon Weeks, head of precious metals at Scotia Mocatta.

Gold and silver were “weighed down by fears about global growth following the release of several disappointing economic pointers this week,” said Fawad Razaqzada, technical analyst at GFT Markets, in a note.

The U.S. fiscal cliff continues to loom as a major economic problem that could benefit gold.

"If we don't see an agreement and there is a gridlock, it will burden the dollar and benefit gold," said Dominic Schnider, analyst at UBS Wealth Management in Singapore.  The more probable result would be a compromise that fails to completely solve the fiscal problems and requiring , the Federal Reserve would have to provide more stimulus to help the economy.  "It is not going to be easy, and it will likely motivate renewed interest in demand for gold," Schnider said.

HSBC strategists believe gold demand may pick up shortly. “We anticipate demand to remain resilient in the fourth quarter, in part due to the emerging markets, most notably in India and China,” they said.

Martin Murenbeeld, chief economist at DundeeWealth, offered his view on why investors might choose gold coins over jewelry.  It's hard to counterfeit gold coins from reputable mints, he said, adding that dishonest profiteers are more often attracted to gold jewelry, which is harder to value.

(Sources:  “Gold futures slip, ready for weekly loss,” Marketwatch, November 16, 2012; “PRECIOUS-Gold inches down; global economic uncertainty weighs,” Reuters, November 16, 2012; “PRECIOUS-Gold eases, heads for weekly loss,” Reuters, November 16, 2012; “Cashing In on the New Gold Rush,” Bloomberg, November 12, 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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