LONDON: Gold hit a three-week high yesterday, buoyed by expectations US monetary policy will remain loose after President Barack Obama’s re-election and by a looming “fiscal cliff” that could slash US public spending.
Since the US elections on Tuesday, investors have become worried that Washington’s politicians may struggle to find a compromise to cut the budget deficit before nearly $600bn worth of spending cuts and tax increases kick in early in 2013. Markets are also watching the debt ceiling, which needs to be raised to avoid a government shutdown.
Spot gold was at $1,738.01 an ounce by 1503 GMT, up 0.64 percent, after earlier touching a three-week peak of $1,738.66, while U.S. gold rose 0.66 percent to $1,737.40. A stronger dollar offset further upside in gold by making the metal more costly in other currencies.
Gold prices rose on Wednesday after Obama’s re-election gave markets a boost by ending weeks of uncertainty and has since extended gains as concerns over the fiscal cliff have intensified.
“Wrangling (between Obama and Congress) between now and the end of the year might underpin gold,” William Adams, head of research at Fastmarkets.com, said. Nic Brown, head of commodities research at Natixis, said the Obama victory signalled a continuing environment of relaxed monetary policy, which was likely to support gold prices.
Standard Bank said in a market note: “In spite of dollar strength, the market appears to continue to take comfort from Obama’s re-election and the implied support this gives to continued monetary accommodation from the Fed.”
Money printing by central banks boosts gold’s appeal as it keeps interest rates at a low level, reducing the opportunity cost of holding a metal that has no yield outside its actual value.
China’s economy strode further along the road of recovery from its slowest growth in three years, data for October showed yesterday, as infrastructure investment accelerated and output from factories ran at its fastest in five months.
China’s gold demand is expected to grow 1 percent this year to a record of around 860 tonnes, Philip Klapwijk, the global head of metals at consultancy Thomson Reuters GFMS, said this week, with both jewellery and investment sales rising.
Gold importers in India, the world’s biggest buyer of bullion, paused in making purchases ahead of festivals next week as a weaker rupee pushed up the gold price for Indian buyers. The festive season in India will peak with Dhanteras and Diwali, while the wedding season continues until December. Silver rose 1.27 percent to $32.73 an ounce. Reuters
