Gold Investors Look Beyond Fiscal Cliff (GLD) (IAU) (SLV)

December 17, 2012 3:09 PM EST
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This morning equities moved higher as fiscal cliff negotiations in Washington advanced. The rally was led by financial sectors stocks, with some banks gaining close to 3 percent. Other sectors such as homebuilders and retail joined the party. Meanwhile, gold’s reaction was noticeably muted. Shares of popular ETF, SPDR Gold Shares (NYSE: GLD), traded just 0.1 percent higher mid-day and spot prices were void of momentum, with prices treading water near $1700 per ounce.

Today's price action may suggest gold traders are more or less confounded by implications of a fiscal cliff resolution. However, despite the apparent disconnect, gold and the fiscal cliff might prove to have a much more obvious relationship on a longer term basis. Short term, economists predict immediate impact on the economy if politicians fail to reach a deal. Looking ahead, gold bugs predict dire consequences if Washington fails to provide 'real' solutions to budget imbalances, instead of kicking the can down the road. That’s the difference – equities investors want a quick fix, while gold investors fear years of fiscal irresponsibility will ultimately led to massive inflation and the collapse of the U.S. dollar.

For now gold traders may appear to be confused or indifferent, but this could change once investors get a look at the nuts as bolts of the deal. In short, fiscal responsibility is likely to be bearish for gold. Anything else could have gold investors pounding the table for a rally in 2013 and beyond.

Related precious metal ETFs, including SPDR Gold Shares (NYSE: GLD), iShares Gold Trust (NYSE: IAU), and iShares Silver Trust (NYSE: SLV), traded flat on Monday.

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