London Gold Market Report
from Ben Traynor
Tuesday 18 December 2012, 07:45 EST
Gold Dips Back Below $1700 with Investors “Wary of Thin Markets”, Signs of Progress on Fiscal Cliff
U.S. DOLLAR gold prices fell back below $1700 an ounce Tuesday morning, having briefly risen above that level following news of possible progress in the ongoing fiscal cliff negotiations in Washington.
“Investors [are] seemingly wary of taking positions in a time of thin liquidity and still waiting to see whether legislators will avert the automatic spending cuts and tax hikes in the US,” says a note from Swiss precious metals group MKS.
Silver also eased lower after trading above $32.50 an ounce, while European stock markets were up slightly on the day by lunchtime.
On the commodities markets, oil prices edged higher while copper fell slightly. The Euro meantime held near seven-month highs against the Dollar above $1.31.
US president Barack Obama has said he is willing to extend tax cuts currently due to expire at the end of this month for those earning $400,000 or less a year, raising his previous threshold of $250,000. Obama is now looking to raise an additional $1.2 trillion in tax revenues over the next decade, press reports say, down from the $1.4 trillion he was previously seeking.
Over the weekend, Republican House of Representatives speaker John Boehner dropped his outright opposition to tax increases, saying he would consider allowing tax cuts to expire for those earning more than $1 million annually.
Obama has also said he will settle for a two-year increase in the US federal debt ceiling, rather than ask for the power to raise it to be transferred from Congress to the Oval Office, the Financial Times reports. The US is expected to hit its $16.4 trillion borrowing limit in February.
“[The White House is] talking about how close Obama’s position is to what Boehner is willing to accept,” points out Brad DeLong, professor of economics at Berkeley.
“They are not talking about how close Obama’s position is to what [House majority leader Eric] Cantor and the right wing of the House Republican caucus are willing to accept…If Obama makes a deal with Boehner, the next stage is for Boehner to say that while the deal is fine with him, he cannot control his members, and that Obama needs to make additional concessions.”
“It is all very tight and it is still possible that [the fiscal cliff issue] runs into next year,” says Steve Barrow, head of G10 research at Standard Bank.
“But what does seem clear is that some sort of deal will be done and that’s clearly helping to support markets, although the optimism is quite guarded.”
“We expect subdued gold-trading action until the market is clear on the fiscal cliff negotiations,” says VTB Capital analyst Andrey Kryuchenkov.
“We see US lawmakers striking an uneasy late deal over spending reductions and tax hikes.”
UK inflation meantime held steady at 2.7% last month, according to consumer price index data published Tuesday.
“Although unchanged overall…there were significant upward and downward pressures on CPI annual inflation between October and November,” the Office for National Statistics says, adding that prices for food, nonalcoholic beverages and domestic energy rose while the cost of items such as motor fuel and furniture fell.
The Bank of England’s Quarterly Bulletin published this morning says that “early signs have been encouraging” that its Funding for Lending Scheme is boosting the amount of credit provided to the economy, although it adds that “given the usual lags from credit being offered to loans being made, the FLS is unlikely to materially affect lending volumes until 2013”.
“Easier access to bank credit should boost consumption and investment by households and businesses,” the bulletin says.
“In turn, increased economic activity should raise incomes.”
The FLS was launched back in July with the aim of providing funds to banks and building societies for the specific purpose of being used to provide credit to households and non-financial businesses.
Over in China, the world’s second-biggest gold buying nation in the third quarter, a growing number of China’s bankers expect to see looser monetary policy, according to a quarterly survey published by China’s central bank Tuesday.
Although 75% of respondents said they believe the current policy stance is the right one, 19.8% said they expect to see some form of easing in the first quarter of 2013. By contrast, only 5.9% of respondents to the Q3 2012 survey said they expected to see monetary easing in Q4.
India’s central bank meantime left its main policy interest rate on hold at 8% today.
“The inflation picture is still not comforting enough for the central bank to let down its inflation guard,” says HSBC chief India and Southeast Asia economist Leif Eskesen in Singapore.
Indian inflation as measured by its wholesale price index fell to 7.24% last month, down from 7.45% in October. India’s central bank has said it wants to see inflation fall to 5%.
India is traditionally the world’s biggest gold buying nation.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+
(c) BullionVault 2012
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