Gold News & Info

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold slipped 0.2% as risk-aversion returned to the markets. Fiscal-cliff optimism, which yesterday carried the S&P 500 to a two-month high and knocked gold to a three-month low, soured after President Obama threatened to veto the Republican plan permitting taxes to increase only on earners above $1 million. Stocks rolled back 0.75% while gold slipped again as traders continued to take profits and square their year-end books. It found support above $1,667, however, as rising German business confidence and improvements in the U.S. housing market increased its inflation-hedge appeal. Silver 1.8% while palladium gained 1.1% and platinum finished virtually flat.

At the Comex close: February gold slipped $3 to $1,667.70; March silver dropped 55 cents to $31.12; January platinum dipped 80 cents to $1,592.90; and March palladium rose $7.40 to $698.35 an ounce.

One of gold's traditional roles has been always as a safe haven against risk, making it the traditional asset of choice when assets like stocks began to lose value. In the last couple of years, as hedge funds and short-term speculators jumped into the bull market, gold has become increasingly correlated with the risk-trade, rising and falling along with stocks. Yesterday's sell-off appeared to be a reversion to the more traditional correlation, with risky assets rising at gold's expense. But that doesn�t mean a wholesale shift in correlations in at hand. Years of unprecedented monetary easing, at home and abroad, have laid the groundwork for aggressive inflation when global economies begin to heat up, and gold has always performed best during periods of spiking inflation. Commodity-demand should also boost precious metals and global recoveries take root and risk-appetite increases.

In the short term, we might see more froth leave the paper-gold trade as speculative money takes its profits and shifts toward equities, especially if a fiscal-cliff deal is reached. But gold's fundamentals remain firmly in place. Negative real interest rates in the U.S. will make it more attractive than most interest-bearing assets for the next few years. Additional monetary easing in the eurozone, Japan, China, and the U.S. will further undermine the value of paper currencies and support higher gold. And our runway national debt and spending, despite any fiscal-cliff deal, will be a drag on the dollar for years to come.