Gold and silver climbed along with the stock market on the
first trading day of the New Year after lawmakers hammered out a
deal to avoid the fiscal cliff, prompting investors to embrace
more risk. Precious metals' strength coincided with the U.S.
dollar and commodity currencies, such as the Canadian and
Front-month gold futures prices rose 0.74% to $1,688.60 an
SPDR Gold Shares (
), tracking a tenth of an ounce of bullion, gapped up 0.83% to
163.37. It rallied off of its key 200-day moving average but
appeared to be hitting resistance as it approaches the 50-day
moving average. This suggests it's in a weak uptrend.
Market Vectors Gold Miners ETF (
) jumped 1.43% to 47.05. It's struggling to regain the 200-day
moving average, which is bearish.
Gold bulls contend precious metals are rising on the
expectation that the fiscal cliff deal will continue to inflate
U.S. debt and devalue the greenback.
"The deal they struck was shocking. We will add $4 trillion
more in debt with no real budget cuts," Terry Sacka, chief
strategist at Cornerstone Asset Metals in Palm Beach Gardens,
Fla., said in an email. "This along with the Fed printing a
trillion over the next year of new money makes the outlook clear:
The U.S. will continue to debase the dollar which will certainly
lead to higher gold and silver prices."
"Once gold can regain $1,700 (an ounce), expect to see the
market heat up again," Peter Spina, president of Goldseek.com,
wrote in an email.
"With appetite for buying our debt internationally decreasing,
the Federal Reserve's dollars-for-debt program provides
assurances that the fiscal problems are to only grow," Spina
added. "The real question in gold and silver investors is not the
fiscal cliff, but ultimately fiscal solvency. This will continue
to drive buying into gold and silver."
Traders also attributed the rally to short-covering in which
traders that sold short commodities to profit from falling prices
have to buy back their positions to close them. This creates
Gold may be rallying on the fiscal cliff deal, but the rally
will be short lived as precious metals will fall to new lows,
according to David Hunter, chief market strategist at KCCI, a
brokerage firm in New York City.
"I believe we will see a global deflationary downturn in 2013
that will cause gold to plunge to $1,000 to $1,100 and silver to
the low teens. Any near-term strength in the metals should be
viewed as a selling opportunity," he wrote in an email.
If the fiscal-cliff deal ends up supporting the economy and
decreasing the budget deficit, the Fed will be less likely to
engage in more economic stimulus, which would be fundamentally
bearish for precious metals.
"With the moderate improvement in the economy and now higher
tax rates, the potential exists for another year of lower U.S.
budget deficits, which may account for the weakening momentum of
gold on a long-term basis," said Andrew Hill, president and
co-founder of Andrew Hill Investment Advisors in Naples, Fla.
Gold futures ended 2012 at $1,676 an ounce, up 7.17% for the
year. It's risen for 12 years straight.
Front-month silver futures popped 2.24% to 31.13 an ounce.
Silver futures ended 2012 at $30.27 an ounce, returning 8.84% for
) picked up 2.25% to 30.03. It regained its 200-day moving
average but still trades below its 50-day line, which means it's
in a weak uptrend.
Silver Miners ETF (
) lifted 3.15% to 23.36. It regained its 50-day moving average
for the first time since mid-November. Trading above this key
level indicates a strong uptrend.
PowerShares DB US Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, surged 0.09% to 21.83. It's consolidating below its
200-day moving average, which means it's in a long-term
Much of the dollar's strength came from weakness in the euro
and the yen. Tommy Molloy, head of trading at FX Solutions in
Saddle River, N.J., said traders sold off safe-haven yen to buy
traditionally more risky commodity currencies such as the
Canadian dollar and the Australian dollar. This comes as the yen
was already falling because of the Japanese government's move to
stimulate its economy and boost inflation by engaging monetary
easing and economic stimulus.
CurrencyShares Japanese Yen Trust (FXY) fell 0.42% to 112.55.
The ETF measuring the yen against the dollar has plunged to its
lowest level in two and a half years.
CurrencyShares Canadian Dollar Trust (FXC) added 0.70% to
100.82. It appears to be forming a bullish cup-with-handle chart
pattern and is just 2% away from its 52-week high. It's also
trading above its 50-day line, indicating a strong uptrend.
CurrencyShares Australian Dollar Trust (FXA) surged 0.94% to
104.93. It's also trading above the 50-day line, showing an
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