U.S. Debt Limit Delay and Stimulus Measures Support Gold Prices
The U.S. Comex gold futures continued to rise this week, jumping 1.40
percent after rising 0.71 percent last week. The S&P 500 index has
been flat while the Euro Stoxx 50 index has dropped 0.60 percent this
week. The MSCI all-country index returned 3.12 percent during the first
half of January, which is a very respectable start. The CRB Commodity
index has risen 0.89 percent so far this year while the Dollar Index is
flat. The currency in the spotlight has been the Yen, which has
weakened about 2.3 percent against the dollar, and about 2.8 percent
against the gold futures this year.
Looming U.S. Debt Ceiling
The U.S. Treasury Secretary Tim Geithner warned on Monday that the
extraordinary measures used to prevent the $16.4 trillion debt ceiling
from being breached will exhaust at the latest in early March. Despite
the passing of the recent tax deal, the government still has to agree on
a plan to prevent the automatic spending cuts from happening at the end
of February. President Obama said that he would not negotiate over the
debt limit with conditions on spending cuts.
Stimulus Measures Continue
The Fed Governor Ben Bernanke gave no signal yesterday that he would
ease off the pedal on quantitative easing. He was still not satisfied
with the economic improvement so far in the U.S. economy, especially in
the labour market. In the meantime, the January New York Fed general
economic index fell to minus 7.8 from minus 7.3 last month. On 11
January, the new Japanese Prime Minister announced his 10.3 trillion yen
fiscal package to revive economic growth. He also called for bold
moves from the Bank of Japan to engage in “unlimited quantitative
easing”, and to raise the inflation goal to 2 percent. The weaker
growth, the U.S. debt ceiling discussions, and the hopes for more
central bank stimulus have been supporting gold prices.
What to Watch Next Week
The highlights of next week will include the E17 meeting in Brussels on
21 January, the Bank of Japan announcement of the target rate and
monetary policy and the European Finance Ministers meeting in Brussels
on 22 January, the January flash manufacturing PMI index for China, the
Euro-17 and the U.S. on 24 January, and the December U.S. new home sales
on 25 January.
Kelly Smith
Sharps Pixley, London
www.sharpspixley.com
16 Jan 2013 | Categories: Gold