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Gold Rebounds Toward $1700by Peter A. Grant
Jan 02, AM 
Gold has rebounded to within striking distance of the pivotal $1700 level as the U.S. narrowly averted a drop over the fiscal cliff, but once again avoided dealing with any of the major underlying issues. Congress took care of the easy work in the eleventh-hour, but true to form, punted once again on the heavy lifting.If there's anyone in Washington that's truly proud of this "compromise," I'm not aware of them. After weeks of wrangling and political brinksmanship, what we ended up with is a deal that reduces revenues and increases spending, adding nearly an additional $4 trillion to the national debt over the next ten-years according to the CBO. I hope there's not anyone out there calling that a success. Nonetheless, with the can kicked — at least with regard to tax rates — it's a 'risk-on' day. The stock market is up sharply, despite wide expectations that the fiscal cliff deal will detract perhaps a point or two in 2013 from already moribund GDP. The dollar index gapped lower to set new two-week lows, amid expectations that the continuation of heavy deficit spending will force the Fed to persist with it's super-accommodative policy stance for the foreseeable future. Slower economic growth is unlikely to hurry us toward the Fed's new unemployment target of 6.5%. What they did succeed in doing is heightening the significance of impending debt ceiling debate. Presumably, this is where Republican's now plan to draw their line in the sand on spending cuts, with the solvency of the federal government and the our sovereign credit rating hanging in the balance. Before the dust has even settled on the fiscal cliff deal, rumblings of U.S. downgrade are already on the rise. Gold attracted very strong interest during the debt ceiling debate of 2011. The yellow metal was trending higher throughout the first half of that year, but really took off in July as debt ceiling negotiations intensified, culminating with a record high of 1920.74 in early September of that year. Gold corrected into year-end 2011, but most of those losses were recouped in January 2012. Similarly, we saw gold retreat into year-end 2012, but already more than 61.8% of the decline from the December high at $1723.36 has already been retraced. The rise back above to 200-day moving average, as well as the shorter-term 20-day moving average, has improved the technical picture significantly, but the yellow metal remains mired just below midpoint of the $1920.74/$1522.48 range that was established in 2011. While still range bound, I would argue that the fundamental factors that drove gold from $251.70 a dozen years ago to that record peak of $1920.74 are still very much in place and are likely to grow far worse before they ever start getting better. Arguably those factors are very much centered on the massive explosion in global debt over that period; and the accompanying incessant printing of fiat currency and easy monetary policy. This was in fact a very big part of what was just debated in Washington — without any real resolution — and will soon be rehashed all over again. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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