Gold "Being Liquidated for Cash" as Stock
Markets Fall Ahead of Fiscal Cliff Negotiations
BullionVault from
Ben Traynor
WHOLESALE gold bullion prices fell below $1710 an ounce Friday morning in London,
dropping below that level for the second day in a row, as stocks, commodities
and the Euro all fell and US Treasuries gained ahead of negotiations among US
lawmakers about the so-called fiscal cliff.
"Gold is being seen increasingly as a source of
cash," says Simon Weeks, head of precious metals at bullion bank Scotia
Mocatta.
"Liquidation of gold can cover losses
elsewhere."
Silver bullion meantime fell to $32.19 an ounce.
On the currency markets, the US Dollar Index, which
measures the Dollar's strength against other major currencies, touched a
10-week high as the Euro's recent rally stalled.
Heading into the weekend, gold bullion looked set for a 1.2% weekly loss by Friday lunchtime in London,
while silver was down 1.3%.
President Obama is due to meet congressional leaders
later today for negotiations on the so-called fiscal cliff due at the start of
next year. Tax cuts made by former president George W Bush are due to expire on
December 31, while spending cuts for the military and social programs are
currently scheduled for January as a result of a deficit deal agreed last year.
Lawmakers are negotiating on how to reduce the federal
deficit over the next deficit; failure to agree a deal would see the tax cut
expiries and spending cuts occur as scheduled.
"[Obama] will not sign, under any circumstances,
an extension of tax cuts for the top 2% of American earners," White House
spokesman Jay Carney said Thursday, a day after President Obama suggested taxes
should be raised for the wealthy to reduce the deficit.
"What we won't do is raise tax rates,"
countered Republican Senate leader Mitch McConnell, who will be at today's
talks.
Ratings agency Standard & Poor's stripped the US
of its AAA credit rating in August 2011, after weeks of negotiations on raising
the so-called 'debt ceiling' for federal debt.
"The [US credit] rating is in the hands of
policymakers," says John Chambers, chairman of S&P's sovereign rating
committee.
"If no budget deal is reached in the early part
of next year and the debt trajectory just continues to rise," adds Bart
Oosterveld at fellow ratings agency Moody's, "then we'd be looking at a
downgrade of a notch to Aa1."
Aa1 is the second-highest Moody's rating after Aaa.
"If we don't see an agreement and there is a
gridlock, it will burden the Dollar and benefit gold," reckons Dominic
Schnider at UBS Wealth Management.
The UK government is unlikely to end its ownership of
Royal Bank of Scotland and Lloyds "any time soon", according to
a report published by parliament's Public Accounts Committee.
"The £66 billion cash spent purchasing shares in
RBS and Lloyds may never be recovered," the report on the sale of Northern
Rock says.
"The low level of competition [to buy Northern
Rock assets] does not give us confidence that the taxpayer will make a profit
on the sale of RBS or Lloyds... it seems inevitable that their 'temporary
public ownership' will last for some time, if getting value for our investment
remains the most important objective for government. "
By contrast, the US Treasury Department said earlier
this year that it expects to
make a $2 billion profit on the
stakes it bought in US banks during the 2008 crisis.
The volume of gold bullion held to back shares in the SPDR Gold Trust (GLD), the world's
largest gold ETF, rose to within 0.07% of its all-time high yesterday, rising to 1339.6
tonnes during Thursday's US trading.
Soros Fund Management increased its investment in the
GLD by 49% to 1.32 million shares during the third quarter, according to the
fund's 13F filing with Securities and Exchange Commission. Hedge fund Paulson &
Co., the GLD's biggest investor, maintained its stake at 21.8 million shares.
In its quarterly Gold Demand
Trends published yesterday, the World Gold Council
notes that notes that gold
investment through exchange traded funds was strong in Q3, in contrast with demand in many markets
for gold coins and bars.
Editor
of Gold News, the analysis and
investment research site from world-leading gold ownership service BullionVault, Ben Traynor was
formerly editor of the Fleet
Street Letter, the UK's longest-running investment letter. A
Cambridge economics graduate, he is a professional writer and editor with a
specialist interest in monetary economics. Ben writes and presents
BullionVault's weekly gold market summary on YouTube and can be found on
Google+
(c)
BullionVault 2012
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Note: This article is to inform your thinking, not lead it. Only you can decide
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