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.