Gold Prices Climb Over 1 Percent on “Fiscal Cliff” Deal Hopes

Gold prices gained on the last trading day of 2012 on what has been a yet another good year for the yellow metal gaining around 6 percent thanks to a period of ultra low interest rates from global central banks, excessive currency printing from the Federal Reserve (quantitative easing measures) and sustained expansion of gold-reserves from central banks as they looked to diversify foreign exchange kitty.

On Tuesday, though, the metal received support after the news emerged that lawmakers were likely to reach an agreement which would avert the U.S. economy sliding off from the “cliff”. According to media reports the White House and senior GOP leader were expected to seal a deal subject to an approval from Senate (which should be any concern as the Senate is controlled by Democrats).

Gold futures for February delivery gained 1.2 percent to close at $1,675.80 an ounce and spot gold was gaining around 1 percent to trade near $1,670 an ounce.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.92% higher at $162.01.

Gold’s safe-haven bids and inflation-hedge bets, which dried out lately as investors remained in sidelines, seeking safety in U.S. dollar in the backdrop of growing uncertainty as to whether lawmakers in Washington will be able to save the dreaded spending cuts and tax hikes coming into effect from 2013, received boost on Tuesday after Senate minority leader Mitch McConnell raised hopes on fiscal agreement.

U.S. equities also rallied on Tuesday as investors’ risk appetite increased significantly as congressional leaders looked heading towards a deal. Had there been no development made before the midnight deadline, series of automatic spending cuts and tax hikes would have come into effect from Jan 2013. As a result, the U.S. economy would have plunged into recession since across-the-board tax hikes would have not only trimmed every American’s paycheck and dented consumer spending but would also shattered business sentiment in the wake of budget cuts.

With marketing sentiment ending on high note due to constructive development between the White House and GOP top leaders (Senate still has to vote on the deal), gold prices are likely to rally in 2013 as broader-asset-class rally in the backdrop of better economic environment will also bode well for the yellow metal. Gold, although considered as safe-haven-instrument, tended to track riskier assets such as equities, oil and other commodity markets in 2012.

In a note, Adam Sarhan, at Sarhan Capital, New York said, “If anything, gold’s rally today with the removal of the US fiscal cliff proves that it’s become a risk asset more than a safe haven.”

Meanwhile, President Obama, although sounded positive, pointed out that there was still some job left. In a news conference, President Obama said, “ Today it appears that an agreement to prevent this New Year’s tax hike is within sight, but it is not done. There are still issues left to resolve, but we’re hopeful that Congress can get it done, but it’s not done.”

For the year, gold prices leaped about 6 percent and posted 12th consecutive yearly gains. The metal touched almost $1,800 an ounce level in October after the Federal Reserve launched its third round of quantitative easing but prices gradually retreated as uncertainty surrounding the U.S. Presidential elections and later “fiscal cliff” concerns kept investors directionless.

Other precious metal also rallied in 2012. A data provided by Reuters showed that palladium gained almost 10 percent in 2012, silver climbed about 9 percent and platinum rallied 8 percent.

On Tuesday, silver futures for March delivery edged up 25 cents or 0.8 percent to $30.23 an ounce. Platinum for March contract gained 0.4 percent $3.05 an ounce to close at $703.35 an ounce while palladium futures for April delivery jumped $20.80 an ounce or 1.4 percent to end the day at $1,542.40 an ounce.




Ed Liston is a senior contributing editor at An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.