Gold Prices Gain as U.S. Congress Reaches “Fiscal Cliff” Deal, Silver Prices Climb over 1 Percent

Gold prices gained during Asian trading hours on Wednesday as demand for inflation-hedge bets improved somewhat after the Republicans dominated House of Representatives approved the fiscal agreement/bill late on Tuesday night thus preventing the U.S. economy falling off a “cliff”; nevertheless, gains are likely to remain restrained as investors will keep an eye on other unresolved budget issues, expected to be discussed in next two months. Silver prices also edged higher in early trading on Wednesday.

At last check, gold futures for February delivery edged up 0.40 percent to $1,682.40 while spot gold also edged up 0.40 percent to $1,681.25 an ounce.

Gold finished almost 7 percent up in 2012, a 12th successive yearly gain which incidentally is a longest bull runs for any precious metal.

Global equity markets also rallied on Wednesday after the news emerged that the U.S. Congress approved the deal.

With investors’ risk appetite growing, the U.S. dollar edged lower against all major traded currencies as investors reduced their exposure in the U.S. unit. Lately, fearing macroeconomic uncertainty, caused to due to policy stalemate in Washington as to “fiscal cliff” issue, more and more investors sought safety in the U.S. dollars. The WSJ $ Index edged down 0.26% on Wednesday, making dollar-dominated commodities cheaper for traders dealing in other currencies.

Metal strategists believe that gold investors will remain little tentative for the time being as they find out how other markets react to the deal. Gold, although considered as a safe-haven asset, tended to track riskier assets such as equities and crude oil, lately.

In a note to investors, Nick Trevethan, senior metals strategist at ANZ in Singapore said, “Right now nobody really seems to be doing very much. Investors want to see how other markets react, equity markets in particular. If we start to see a bit of a gain in equity markets, gold will probably follow suit. I suspect investors in this part of the world want to see how Europe and U.S. investors react.”

Meanwhile, analysts at UBS Bank have provided very bullish outlook on gold and platinum.

In a research note, the bank wrote, “In the first quarter of 2013, economic uncertainty on the outcome of the U.S. fiscal cliff, among other factors, warrants a defensive posture. We therefore think gold and platinum are an outright buy at present levels as both metals have very low supply elasticity and are key beneficiaries of loose monetary policy.”

“In the case of gold, we still target the level of $1,950 an ounce over the next three months, while we expect platinum to move to $1,800 an ounce over the same period,” said the bank.

Silver futures climbed 1.49 percent to $30.80 an ounce.

In pre-market trading, the iShares Silver Trust (ETF) (NYSE: SLV) was up 1.87%, and the ProShares Ultra Silver (ETF) (NYSE: AGQ) was up 3.08%.



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.