Gold and Silver Traders Prepare for the Holidays

Gold tumbled to their lowest level in three months yesterday as pessimism over the U.S. budget negotiations pushed prices below a key technical level, triggering a wave of selling. Gold futures fell sharply, to close at the lowest level since late August, with a rise in US homebuilder confidence, progress in negotiations to avert the fiscal cliff and a credit-rating upgrade for Greece dulled metal’s safe-haven appeal. Gold was initially trading unchanged, gold prices turned negative after House Speaker John Boehner said he was working on a back-up plan should talks with President Barack Obama to avoid the “fiscal cliff” fall through. The pair are negotiating a deal to replace a sweeping package of automatic tax increases and spending cuts scheduled to take effect early next year. A failure to reach an agreement would likely send the U.S. economy into a recession, according to several economists. The uncertainty surrounding the negotiations saw some investors sell their gold holdings. Gold soon broke through its exponential 200-day moving average—a closely followed indicator of long-term price trends.

Some investors are opting to avoid the thin trading conditions around the holiday season, which can lead to rapid changes in gold prices during the final weeks of the year, brokers said. Others are opting to take an early break from a market they feel is unlikely to make a substantial move in the coming days due to the uncertainty surrounding U.S. fiscal-cliff talks.

Although negotiations continued yesterday and remarks from the White House and Republicans showed that negotiations were moving forward, behind closed doors, politicians continued their public rhetoric.

Market concerns are no longer focused on the fiscal cliff but on the tax implications of the agreements and its effects on positions and profits at year end. With Christmas holidays just days away with many traders out of the office for several days and many taking holiday leave, trading days are dwindling quickly.

The US dollar continues to weaken as traders move to the euro as positive sentiment and holiday cheer seem to engulf the markets. Yesterday, S&P delivered a pre-holiday gift, upgrading Greece’s debt rating by 6 notches and praising the Eurozone leaders for their guidance through the economic crisis in Greece.

Gold is trading this morning at 1676.15 adding over 5.00 dollar as traders take advantage of a the weak dollar to grab up low priced gold. Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,350.52 tons, as on Dec 17. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,871.29 tons, as on Dec. 17^th.

US Housing data and Germany data might affect markets today, but it is not expected to have any effect on gold, precious metals are reacting to news flows which could include Spain, Italy and the US budget negotiations. Gold is expected to remain rangebound today. Silver is following cues from gold this morning trading at 31.763 adding 0.094 cents.