Comex Gold Prices shot up to $1695.4 & Silver Prices rose even sharply to $31.53, in line with other commodities and stock markets in the wake of the US lawmakers successfully averting the Fiscal Cliff doom of spending cuts & tax hikes, although for the time being. The Gold and Silver markets along with other financial markets seem to be in a Risk On mode. Asian, European & US Stock & Commodity Markets rallied & cheered the immediate aversion of the fiscal doom after the House of Representatives voted on Tuesday night to pass a bipartisan fiscal bill that had been approved by the Senate. In Asia, the Indian Stock Markets hit a two year high & the Hong Kong stock market hit a fresh 19-month high on some more positive economic news coming out of China. The long-awaited deal prompted a broad global market rally on Wednesday, with shares and commodities rising sharply while the dollar and safe-haven government bonds fell. The temporary resolution of the Fiscal Cliff problem, coupled with some New Year zeal, will push Commodity Prices higher to start with, but overall nothing has really changed much. And it’s clear that there is a lot more of negotiation turbulence to go as we move through January and February. A number of complex & serious fiscal issues remain unresolved and compromises will be a huge negative for the US & Global Economy. The markets need to understand that the Congress approved deal is just a temporary reprieve on fiscal issues and did not address the Debt Ceiling or include spending cuts. The euphoria will in fact start to wear off as we move back into the world of hard facts again, which will happen probably sooner rather than later.
Gold Prices will be benefiting from an anticipation that the US Dollar will weaken as risky assets go up. Technically Comex Gold faces a reasonable resistance around the $1720 to $1729 range, which only if surpassed, can trigger sharp upside movements to $1810 & then $1855. Comex Silver faces small resistances near $32.50, then $33.85 to $34.30 range & finally near $36.10. If Silver moves above the $36.10 level with reasonable strength, then practically speaking, there would be nothing which could stop Silver Prices from rushing to $50.50 or even beyond to reach new lifetime highs. Copper & other Base Metals also shot up sharply on positive global cues & also on the positive Economic Data coming out of China. Expectations are that with a new government in power, China will likely seek to stimulate growth, probably domestically, to offset the loss of export business to Europe. Hedge Funds will be getting ready to pump in big money into new positions as the New Year trading begins. The Stock & Commodity Markets, after weeks of downfalls, seem to have finally got a temporary fix and rebounded on an Adrenaline Rush. More upside movements can be expected to last till the weekend or till the start of next week.
Spending cuts of $109 billion in military and domestic programs are only delayed for two months. The US soon faces its worst nightmare of reducing spending, raising additional revenue and increase the debt ceiling by Feb – Mar 2013, which will be even more contentious than these past negotiations. Decisions on spending cuts have been put off for another two months, which will likely lead to further political squabbling. The upcoming debate will focus exclusively on the politically difficult choices that have to be made to achieve fiscal consolidation. The Debt Ceiling issue could eventually lead the US to a Credit rating downgrade.
India, the world’s largest Gold Bullion buyer, may raise taxes on Gold imports to help tackle a record Current Account Deficit. Indian Gold Futures on the MCX & other commodity exchanges extended gains to their highest in two weeks after Finance Minister P. Chidambaram hinted at making imports of the Precious Metal more expensive, triggering speculative buying from physical traders. RBI -India’s central bank has asked that volume and value restrictions be placed on Gold imports by banks and agencies such as MMTC to help rein in a current account gap, which touched an all-time high in the July-September quarter. MCX Gold Prices hit a high of Rs. 31,191 from the day’s low of Rs. 30,760 & MCX Silver shot up sharply to Rs. 59,580 from Rs. 57,896. Curbs may crimp Gold Demand in Asia’s third-largest economy, hurting Gold Prices that rallied for a 12th year in 2012 as investors held record amounts in exchange-traded products and central banks stepped up purchases. About 80% of India’s Current Account Deficit is attributable to Gold imports. Taxes may be raised to 6% from the current 4% over time & Gold Imports may decline by 20% to 25% in 2013 from an estimated 750 metric tons last year. Last March, India doubled the tax on purchases of Gold Bars and Gold Coins to help narrow the current-account gap. Still, demand for gold picked up “significantly” in the July-to-September quarter, the RBI – Reserve Bank of India said in its biannual Financial Stability report last month, which flagged the deficit and said there was depreciation pressure on the rupee.
India’s Current Account Deficit – CAD, widened to $22.31 billion in the three months to Sept. 30 as a faltering global economy hurt exports, the Reserve Bank of India said Dec. 31. That was in line with the $22.3 billion median estimate in a Bloomberg survey. The CAD had risen to 4.2% of GDP in the 2011-12 fiscal on account of high gold import and increasing prices of crude oil in international markets. Chidambaram said gold imports at $20.25 billion substantially contributed to the widening of the current account deficit – $38.7 billion or 4.6 percent of GDP in the first six months of the current fiscal year ending in March. “Suppose gold imports had been one half of the actual level, that would have meant our foreign exchange reserves would have increased by $10.5 billion,” he said. The current account is the broadest measure of trade, tracking goods, services and investment income. Imports by India rose for the first time in five quarters in the three months to Sept. 30, according to the World Gold Council. Imports jumped 9% to 223 tons in the third quarter of 2012 from 205 tons a year earlier. Gold Bullion in Mumbai, which surged to a record 32,464 rupees ($598) per 10 grams on Nov. 26, gained 13% in 2012 after the INR – Indian Rupee fell about 3.5% against the US Dollar. Worries over India’s external accounts, borrowing and fiscal deficit have led global ratings agencies Standard & Poor’s and Fitch to threaten downgrading its credit to junk.
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