Happy Times Await Gold Investors
Stock investors gave a resounding "thumbs down" to the successful re-election campaign of Barack Obama. The day after voters decided to give President Obama a second term as president, the Dow Jones plunged by 313 points or 2.4%. By November 15th, the market had declined by another 390 points as investors panicked over the countdown to the rapidly approaching fiscal cliff which would hit the economy with increased taxes and spending cuts at the beginning of 2013.
Gold investors, on the other hand, viewed the fiscal cliff as a reason to increase their allocation to gold regardless of how it turns out. If the economy goes off the fiscal cliff, the Federal Reserve would act to counteract a slowdown in the economy with additional quantitative easing. If an agreement is reached to avoid the fiscal cliff, government deficits would continue to expand with no offset from increased taxes. Either way, the integrity of the dollar faces a renewed assault as the financial condition of the U.S. government continues to deteriorate and the Fed continues to debase the currency through its ever increasing money printing campaigns. Is it any wonder that gold has outperformed stocks during 2012, with the out performance increasing dramatically during the past three months as concerns about the fiscal cliff have increased?
courtesy: yahoo.com
Apart from the constant fears over the ‘fiscal cliff’, there are other factors that will continue to support an increase in precious metal prices. The festive season in India is entering its peak time and China's hunger for gold as a hedge and store of value continues to grow.
Impact of the fiscal cliff on the price of gold
Portfolio manager David Hemming projects that the US fiscal cliff provides strong support for precious metals and commodities. Gold and silver, acting as both a safe haven and currency, should continue to outperform. Helping to escalate gold prices were comments by the President indicating that if the lawmakers don’t conclude to an agreement on the unresolved financial issues by the end of the year, the economy could enter a recession. Renewed economic weakness would lead to additional Fed easing and the potential for increased inflation, both of which would benefit the price of gold.
The future of gold – Predictions by some experts
Midas Fund owner Tom Windmill anticipates a coming gold craze next year with gold prices reaching $1,900 by the end of this year. During the “mini” fiscal cliff and debt ceiling debacle of last year, gold soared 30% and experts are expecting to see this happen yet again in 2013. Taking a closer look at the big picture, he also added that the present economic conditions are a positive for all hard assets, including gold and silver. Over the next year, gold prices could easily increase to $2,200 per ounce. Gold jewelry investment sales are also predicted to rise by the end of 2013 as more and more people turn to gold to protect their wealth.
While the ‘fiscal cliff’ is the main factor pushing up gold prices, there are also global factors playing a supportive role. The global head of metals at Thomas Reuters believes that China’s demand for gold could rise to a new record which will contribute to a breakout to new all time highs for gold during 2013.
By Alden Brooks, the Community Member of oak view law group (OVLG).
