Gold rose to a two-week high yesterday in line with stock markets and other commodities after the US Congress finally passed a bill fending off huge tax hikes and spending cuts that threatened to jeopardise economic growth.
The US averted economic calamity on Tuesday when legislators approved a deal to prevent huge tax hikes and spending cuts that would have pushed the world’s largest economy off a so-called “fiscal cliff” and into recession.
Gold touched a two-week peak of $1 684.50 (R14 271) an ounce before losing some ground to stand $8.16 up at $1 682.70 an ounce at 11.14am in London. US gold for February rose $7.90 to $1 683.70 an ounce.
European shares, oil and base metals rose strongly, while the safe-haven dollar and German government bonds fell.
“The deal does not seem like a long-term durable solution to the US debt, but it’s given the gold market the excuse to move higher, helped by the dollar,” Saxo Bank vice-president Ole Hansen said.
A softer dollar boosts commodities priced in the greenback by making them cheaper for holders of other currencies.
An agreement on the US budget can be viewed as a positive for riskier currencies such as the euro, the Australian dollar and the rand, while a deadlock into the new year would have been deemed positive for the safe-haven and highly liquid dollar.
Gold is traditionally an inflation hedge and a market that investors rush to in times of uncertainty, but has lately behaved more like an industrial commodity, rising and falling with the stock market and even following the dollar.
Hansen said that if gold closed above a current resistance level of about $1 685, the metal could attract more speculative buying.
Gold gained about 7 percent in 2012, the twelfth consecutive year of gains. However, it recorded a soft final quarter to the year, falling 5.4 percent, its worst quarterly performance since the July to September period of 2008. Its struggle to maintain traction has dented some investors’ confidence in the metal, curbing a stronger move in prices.
“The temporary resolution of the fiscal cliff problem, coupled with some new year zeal, will push prices higher to start with, but overall, nothing has really changed from this time a week ago, or a month ago,” Marex Spectron said in a note.
“As such, the markets will remain slightly moribund and rangebound between $1 650 and $1 700 for the time being.”
Indian gold futures extended gains to their highest in two weeks after the finance minister hinted at making imports of the metal more expensive, triggering speculative buying from physical traders.
Finance Minister Palaniappan Chidambaram said yesterday that India was considering raising the cost of gold imports in a bid to control a record-high current account deficit that could further dent shipments.
Shares of gold mining firms also rallied, with Harmony Gold trading more than 3 percent up at R8.96 by mid-afternoon on the JSE, while AngloGold Ashanti added 1.4 percent to R265.97 and Gold Fields gained 1.1 percent to R104.84. In New York Newmont Mining shot up 3.1 percent and Barrick Gold gained 2.9 percent, while Newcrest Mining added 3.6 percent in Sydney.
The benefits of the rising gold price may be dampened by a rising rand. – Staff reporter and Reuters