Markets Waiver and Precious Metals Rebound with NO Deal in the US

As the year draws to an end, markets are wavering as expectations of a deal to prevent the U.S. stumbling over its “fiscal cliff” left overbought indexes vulnerable to profit taking. Wall Street took another beating Friday, falling for the fifth-consecutive session, as skepticism grew that lawmakers in Washington could work out a deal to avoid the “fiscal cliff” by year end. Last minute negotiations continued over the weekend with Sunday ending with no deal and politicians saying they have reached an impasse. Equity futures are tumbling as minutes tick by with no deal.

Traders are moving to risk aversion mode, with the US dollar climbing to trade at 79.85 as speculators are moving to safety. With the holiday week in play, many traders are already on extended holiday vacations while others have taken a long weekend and many have sold off to book year end profits. Volume is expected to be very light, as many traders have already moved to safety because of the uncertainties. The dollar index touched a 2-week high, as President Barack Obama and US lawmakers seek to avert the so-called fiscal cliff of more than $600bn of tax increases and spending cuts.

Gold futures declined at the end of the week, as investors turn cautious over the possibility of higher taxes next year as US lawmakers continue work on a budget deal as the year-end deadline approaches.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,350.82 tons, as on Dec 21. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,045.85 tons, as on Dec. 21.

What is surprising is that gold has recovered Friday’s losses in early Monday trading to trade at 1660.75 adding 4.85. Gold advanced, poised for a 12th annual gain, as U.S. lawmakers struggled to reach a budget deal before automatic tax increases and spending cuts start to take effect from tomorrow, boosting demand for a haven.

There is little in the way of eco data due today so markets will remain sensitive to news flow from the US. Efforts to prevent the US economy from tumbling over a “fiscal cliff” stalled on Sunday, as Democrats and Republicans remained at loggerheads over a deal that would prevent taxes for all Americans from rising on New Year’s Day. An agreement on the US budget would be viewed as positive for riskier currencies such as the euro and Australian dollar, while a deadlock is deemed positive for safe-haven and highly liquid dollar.

Silver has climbed by .0218 to trade at 30.193 on strength in precious metals and a surge in industrials metals after the release of Chinese data. China’s manufacturing unexpectedly expanded at the fastest pace in 19 months in Dec, boosting optimism that a recovery in the world’s second-biggest economy is gaining traction. The final reading of a PMI was 51.5 in Dec. That compares with the 50.9 preliminary reading on Dec. 14 and a final 50.5 in Nov.