Gold Hugging the 1700 Price Level

This morning gold rebounded making up some of yesterday’s losses. Bargain hunters were able to buy up gold in the 1695 range and drove prices to trade at 1703.75, well under its monthly average. Gold had been trading in the 1720-1740 range over most of the previous sessions. Gold futures declined to close at a one-month low below $1,700 per ounce, mainly due to technical pressure following short-selling in Asian trades. Bullion price drop was also supported by under performing equities and other commodities, as heavy fund liquidation and options-related selling.

EFT’s bought up tons of cheap gold yesterday, reports showed that gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,351.24 tons, as on Dec 4. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,790.02 tons, as on Dec. 4.

Gold was down as uncertainty over the fiscal cliff continued and investors await the solution to avert the crisis. The Democrats are insisting on tax hikes for the wealthiest 2% which the Republicans are not supporting and a common ground is not reached though the deadline is approaching. Although traders are sure that a deal will be struck at the last moment as US politics work. Lawmakers enjoy their time in the spotlight and are setting the groundwork for future elections

Gold edged up but still hovered near its weakest in a month as talks between the White House and Congress to avoid year-end tax hikes and spending cuts showed little progress and kept most investors at bay. The U.S. economy could slip into recession if the two parties failed to reach a deal to avoid a year-end budget crisis. President Barack Obama dangled the possibility of lowering tax rates in 2013 with a broad U.S. tax code revamp, but stood firm on insisting rates for the wealthiest must rise as part of a budget deal with Congress.

Gold investors are now focusing on the outlook for U.S. non-farm payrolls data on Friday, due to the link between job creation and monetary policy. Continued weak job creation numbers could mean the Fed’s monthly buyback of $40 billion in mortgage-backed securities would likely continue in the near term. Another round of aggressive Fed asset buyback and possible economic stimulus from the Bank of Japan could lift gold prices. The FOMC is set for its two day meeting on December 10-11.

From the economic data front, the eurozone PPI is likely to remain weak as producers might fail to raise prices amidst weak volumes and poor demand which would have negative impact on base metals. Fundamentally, metal inventories have witnessed stockpiling except Lead while cancelled warrants have also declined due to onset of winters and would weaken base metals as the session progresses. Overall, traders expect base metals to remain weak in today’s session. Silver has also rebound on bargain shopping to trade at 33.188