Gold Edges Back Up

December 5, 2012 at 09:57


Gold edged up on bargain hunting on Wednesday, but still hovered near its weakest in a month as talks between the White House and Congress to avoid year-end tax hikes and spending cuts showed little progress and kept most investors at bay.

The U.S. economy could slip into recession if the two parties failed to reach a deal to avoid a year-end budget crisis. President Barack Obama dangled the possibility of lowering tax rates in 2013 with a broad U.S. tax code revamp, but stood firm on insisting rates for the wealthiest must rise as part of a budget deal with Congress.

“I think there are a few scenarios that we could look at. They may not come to a real, long-term deal. So we are expecting that there will be delays, which mean they will extend the deadline until they come to an agreement,” said Lynette Tan, senior investment analyst at Phillip Futures in Singapore.

“If this happens, gold will probably be pressured in the short term until the reality that delaying the solution will ultimately hurt the economy further.”

Asian shares hit a 16-month high on Wednesday, led by Chinese equities that surged after comments from China’s new Communist Party chief Xi Jinping that raised hopes for stable growth.

But concerns over whether the United States could avert the so-called fiscal cliff, a series of automatic tax hikes and spending cuts worth $600 billion that will take effect in January unless Congress acts, kept optimism in check.

“If the U.S. really falls off the ‘fiscal cliff’, we are likely to see some buying of gold for store of value and also on the outlook that the U.S. dollar may depreciate further,” said Tan at Phillip Futures.

“This is likely to give some support to gold.”

News that South Korea’s central bank had purchased 14 tons of gold in November using its foreign reserves in order to spread its portfolio risks was largely ignored.

“We continue to see a risk of further sharp moves in gold after the dead cat bounce yesterday,” the ANZ said in a report.

“We are biased towards a near-term technical decline targeting $1,670 but remain constructive on medium term fundamentals.”

The physical market was deserted, with jewelers waiting for a clearer price direction.

“There was some buying yesterday but today the market is quiet once again,” said a physical dealer in Singapore.