NEW YEAR "COUNT" "DOWN" FOR GOLD

                                       

Firstly, wishing all readers a Very Happy New Year in advance. As we give farewell to 2012 and welcome 2013 with a bang, we wish the same for the economy worldwide and for all markets. 

Currently, the most talked about topic this new years eve is the "THE GREAT FISCAL CLIFF " and what effect will it have globally, once some decision  is arrived on the same.

In simple terms, fiscal cliff refers to the economic effects that could result from automatic tax increases and a corresponding reduction in the US Budget deficit beginning in 2012 if existing laws remain unchanged.

Gold and silver continued to slowly change during recent days. The recent attempts of President Obama to reach an agreement with Congress regarding to avoid the fiscal cliff didn’t seem to impress investors of bullion up to now

The prices of gold and silver remained nearly unchanged in recent days as they have shifted with an unclear trend. This low movement is likely to continue especially as the trading volume is picking up following the holiday break. The recent U.S reports including new home sales and jobless claims may have contributed to the strengthening of the USD against some currencies and thus may have curbed the recent rise in the prices of gold and silver. Nonetheless, as long as the movement of precious metals remains low, this could be just a matter of market shifts or noise.

Investors and traders continue to worry about the U.S. fiscal cliff negotiations that have stalled and now with only a few days left for U.S. lawmakers to reach a deal. there was no progress on the matter as of Thursday afternoon. That did prompt some mild safe-haven demand for gold on Thursday. U.S. lawmakers have until January 3 to come to agreement before the government falls off the fiscal cliff. Uncertainty is not preferred by any market and hence most markets remain edgy  as the deadline draws closer.

President Obama was due to hold talks with congressional leaders later on Friday, as part of ongoing negotiations on how best to tackle the US federal deficit. The US economy is due to hit the so-called fiscal cliff next week unless Congress agrees to halt planned spending cuts and extend tax cuts from the Bush administration.

The spot market gold price fell back to $1660 an ounce Friday morning, close to where it started the week,  ahead of talks in Washington aimed at avoiding the $600 billion "fiscal cliff" of spending cuts and tax rises due within days.

Silver meantime eased back towards the $30 an ounce mark, while other commodity prices were little changed.

On the currency markets, the Euro fell against the Dollar Friday morning, dropping 0.6% in two hours, with traders blaming thin volumes and stop loss selling.

It’s also worth noticing the developments in India and China two of the leading importers of gold and silver worldwide. These economies haven’t performed well during 2012. Furthermore, the devolution of the Indian Rupee against the USD during the year (mainly during the first half of the year) may have curbed the demand for gold and could continue to do so in 2013. Nonetheless, if India and China will show signs of recovery during the year, this could contribute to the rise in the prices of gold and silver via an increase in the demand for these precious metals.

Challenging time for the Safe metal!

Almost the whole world is focused on the world’s biggest economy taking its fiscal cliff decision. An agreement is must and that will decide the future of US economy and to some extent even the global economy. Ratings firm Fitch said on Wednesday it is more likely to strip the United States of its triple-A status if a political deal is not reached to halt $600 billion of spending cuts and tax hikes set for early next year.

U.S. stocks and almost all the equity markets around the world are witnessing the best Bull Run over a long time as President Barack Obama and Republicans continued budget talks which are looking fruitful.

Beyond asset purchases by the U.S. Federal Reserve, as increased liquidity is usually beneficial for gold as some investors consider the metal to be hedge against inflation, uncertainties still linger over the U.S. "fiscal cliff" and debt ceiling, Gold prices have sunk to their lowest level in three months as pessimism over the US fiscal-cliff negotiations pushed prices below a key technical level, triggering a wave of selling.

Initially trading near unchanged, gold prices retrenched after House Speaker John Boehner said he was working on a back-up plan should US budget deficit talks with President Barack Obama fall through. The pair had been negotiating a deal to avoiding a sweeping package of automatic tax increases and spending cuts known as the fiscal cliff.

Investors turned aggressively against precious metals yesterday, as a generally quiet day turned into a dramatic sell-off after the London PM fix. Gold which has been struggling to unhinge itself from the $1,700/oz level, dropped to a low of around $1,660/oz. Physical buying was evident; although, even coupled with a weaker dollar this was not enough to turn the tide. Clearly, participants are feeling vulnerable. Dallas Fed President Fisher once again downplaying the benefits of QE yesterday did not help.

Gold is well supported at USD 1660 levels. Short term down trend is being witnessed and the bullish picture can only be witnessed after USD 1730. While Silver has not been able to cross the 34.50 mark, and it’s once again on its way to test the support level at 31.50. Only sustainable prices above 34.50 would improve the technical picture.

Gold and silver prices tumbled at the national front too on heavy selling by stockists sparked by global meltdown amid sluggish domestic demand at existing higher levels. While gold tumbled by Rs 500 to Rs 31,200 per 10 gm, silver dropped by Rs 1,300 to Rs 60,000 per kg. In addition, sluggish domestic demand at prevailing higher levels and some investors seen shifting their funds from weakening bullion to rising equity further dampened the sentiment, they said.

On the domestic front, gold of 99.9 and 99.5 per cent purity tumbled by Rs 500 each to Rs 31,200 and Rs 31,000 per 10 gm, respectively. The metal had climbed by Rs 275 in yesterday. Similarly, silver ready dropped by Rs 1,300 to Rs 60,000 per kg and weekly-based delivery by Rs 1,170 to Rs 60,680 per kg.

Gold importers in India, the world's biggest buyer of the metal, continued picking up bargains for weddings as a stronger rupee weighed on the yellow metal, extending losses to the lowest level in nearly two weeks.

Looking at the current scenario, safe haven metal status is being challenged which would allow the short term down trend to continue.

GOLD & SILVER go HAYWIRE!

This week was completely haywire for precious metals.

Gold and silver went down and then bounced back on Wednesday. However, on Thursday gold and silver plunged down big time. On Thursday, the price of gold fell by 1.21% to $1,695.9; Silver price also plunged by 4.18% to $32.3. During the month, gold declined by 0.88%; silver, by 2.73%.

In the Indian markets, Gold fell Rs. 230 per 10 gram and silver fell by a whooping Rs.1700 per kg. It seems the recent FOMC decision didn’t help rally precious metals prices. On Wednesday, several U.S reports came out: retail sales rose by 0.3% during November; the PPI sharply fell by 0.8% last month; jobless claims declined again 29k to reach 343k. These reports suggest that the U.S economy is progressing and the inflation isn’t expanding.

The FOMC announced on Wednesday it will expand QE3 by start purchasing at the beginning of 2013 long term treasuries securities at a rate of $45 billion per month. This plan will substitute operation twist and will come in addition to the $40 billion mortgage backed securities purchase plan

However, the prices of gold and silver changed direction and plunged on Thursday despite the launch of the extended QE3. This drop in prices is an indication that many investors have cashed their investment in precious metals as these metals haven’t performed that well during the year 2012.Moreover, these investors might be waiting for the outcome of the budget talks in Congress and the consequences of the fiscal cliff.

Some bargain hunting had also occurred in gold after the metal fell below $1,700 an ounce overnight. The metal rose Wednesday on news of more Federal Reserve quantitative easing. But the inducement to lock in profits as we near year-end was strong, and therefore gold sold off. 

Meanwhile, markets were knocked back further on fading hopes that euro bloc leaders would reach broad agreement on Friday to tackle the region's debt crisis after Germany rejected draft proposals that would increase the euro zone's firepower in dealing with the credit crisis. Germany rejected some measures in draft conclusions from the summit, including giving the European Stability Mechanism (ESM) a banking license and issuing common euro-zone debt.

As far as currencies were concerned, The Euro/ USD remained unchanged on Thursday at 1.3077. During the month, the Euro/USD rose by 0.7%. Several currencies such as Aussie dollar depreciated yesterday against the USD by 0.26%. The correlations among gold, silver Euro and Aussie have weakened in recent days: during November/December, Thus, if the Euro and other risk currencies will decline against the USD, they are likely to pull down gold and silver.

Now, as we move towards the end of 2012, all eyes await the ‘fiscal cliff’ decision. We hope 2013 will have lots of positive sentiments in basket as far as precious metals are concerned.

HOLD YOUR GOLD!

Last week we saw gold and silver going zigzag and then closing on a lower side by Friday. The prices of gold and silver changed direction and tumbled down on Tuesday and thus resume their downward trend from last week. The ongoing concerns regarding the fiscal cliff are likely to contribute to the volatility of precious metals in the weeks to follow. The prices of gold and silver continue to zigzag as both metals tumbled down. Other leading commodities prices such as crude oil and natural gas also fell on Wednesday.

Gold prices closed under $1,700 for the second consecutive day on the Comex division of the New York Mercantile Exchange Wednesday.

On Tuesday, the price of gold fell by 1.49% to $1,694.4; Silver price also tumbled down by 2.89% to $32.73. During the week, gold declined by 0.92%; silver, by 1.442%.
However the week opened with a positive note. Over the weekend, figures showed that Chinese exports in November increased by 2.9 percent to $179.4 billion, albeit hopes were for 9.6 percent growth in shipments. Imports were unchanged from the previous month at $159.8 billion.

Gold prices hit their highest for a week in Monday morning bullion trading in Europe, with the precious metals sector in a positive frame of mind ahead of this week's US FOMC meeting

The focus of the U S market place this week remained in the ‘fiscal cliff’ tax increases and spending cuts. This fast approaching ‘fiscal cliff’ is the most discussed issue worldwide as it will play an important role for all major markets.

U.S. lawmakers are still jawboning on the matter, with the market place paying less attention to the politicians’ rhetoric. While the market place presently perceives odds are higher than not that there will be a last-minute agreement among U.S. lawmakers to avoid the fiscal cliff, the overall situation has been a bearish drag on many markets, including the raw commodities and stock markets.

All eyes stay glued on the much awaited FOMC meeting of the Federal Reserve to be held next week on December 11 and 12. This will be the last meeting of 2012 and major topics of discussion include The “Operation Twist” program that comes to an end and the FOMC members have to take a decision on the extension of the bond buying program. There is a belief that the Fed will continue to purchase the US treasuries and launch ‘QE 4’ at this meeting. If this happens then precious metals market tends to remain bullish.

Asian stocks rallied on news that Chinese government officials have said they want to stimulate their economy by implementing more construction projects. Also, China’s purchasing managers index showed further expansion in November. This news is an underlying supportive factor for the metals markets.

Moreover, the upcoming reports including: U.S non-manufacturing PMI could moderately affect commodities markets. If the PMI will rise again it may pull up commodities prices. Australia’s employment report could affect not only the Aussie dollar but also precious metals prices. If this report will show the economy isn’t doing well, it could adversely Australia’s currency. This, in turn, could adversely affect precious metals. Finally, if the Euro and other “risk currencies” will rally against the USD, they are likely to pull up precious metals. 

The Euro/ USD increased again on Tuesday by 0.31% to 1.3094. During the week, the Euro/USD rose by 0.83%. 

The correlations among gold, Euro and Aussie are still strong even thought they have recently weakened: during November and December. Thus, if the Euro and other risk currencies will rise again against the USD, they are likely to pull up gold and silver.

FISCAL CLIFF HANGS DOWN GOLD!

Gold prices ended Friday weaker, following weakness in equities.

Gold fell almost a per cent on Friday and declined consecutively for the second month. This decline was due to investor worries over the US Fiscal Cliff resolution. 

In the Indian market, by the end of Friday’s trading session gold was down by almost 400 rupees per 10 gram and silver by 1700 rupees per kg. Global news led to these volatile movements in the domestic markets.

Some believe that the fiscal crisis might lead to a recession. Some even lightened their positions in gold as they feared that a failure to reach a budget deal could lower gold’s appeal as an inflation hedge.

Moreover the end of month profit making saw an outbreak of sells orders. Bullion prices saw a further drop after John Boehner (Speaker of the House) said that lawmakers from his Republican party and President Barrack Obama were in a state of deadlock over a budget deal that needed to avoid a $600 billion fiscal cliff.

Apart from the Fiscal Cliff there is a lot in basket for gold and other precious metals. Important US Economic Data, monthly employment data are also due. Global manufacturing data will soon be released, including China's November HSBC manufacturing PMI, the U.S. November ISM manufacturing index and the November Euro zone PMI. However, investors believe that any development regarding the fiscal cliff will overshadow all these data reports.

Currently markets worldwide have glued their eyes on the fast approaching “fiscal cliff”.

However some investors believe that fiscal cliff might even push up gold prices further. Their reasoning is that precious metals are now an asset class, and just like every other asset class prices will fall as investors turn to cash while some debate that it will pull down the prices as the demand for gold as a safe haven will decline.

Failure to avert the cliff will push the US into recession and will pose significant difficulties for the world’s largest economy if they are to continue their economic recovery from the GFC.

As long as the fiscal cliff debate continues, gold prices should remain within their current narrow trading band. Till then Gold’s ability to hold the low $1,700 area suggests that the market has strong support at that region.