Precious Metals Take Breather As Washington Scrambles To Get House In Order

December 27, 2012 12:48 PM EST
Gold and silver prices remained stable on Thursday as fiscal cliff talks in Washington remained stalled. For the most part, precious metals were pressured in December as investors sought risk assets in anticipation conclusive budget talks, which to-date have failed to materialize.

Metals also came under pressure when key technical levels were breached. Notably, gold bulls could not hold the line on $1675 per ounce and silver broke below $31 per ounce, leading to sharp sell-offs. Since then, both metals have entered a consolidation phase, as investors await result from talks in Washington.

For now, analysts say the most likely scenario appears to be kick-the-can type agreement between Republicans and Democrats. While not necessarily a bad thing for precious metals, clearly many gold bugs are hoping, or perhaps fearing, U.S. lawmakers will untimely fail to make tough decisions needed to save the U.S. economy in the long term. With massive deficits, a weak labor market, and an 'edge' in global business that is slowly evaporating, gold bulls may be right.

In the short term, however, gold and silver could be pressured if lawmakers come to agreement on a patchwork fix to the fiscal cliff. Additionally, stable housing and employment will weigh on gold and other metals – widely viewed as a bet on uncontrolled inflation combined with a weak economy in the U.S. In other words, gold in many ways is a bet against America - or a hedge, however you want to look at it.

Gold prices climbed off recent lows to trade near $1660 per ounce on Thursday. Silver swung higher to $30.33.

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