US Fiscal Woes Weight On Gold & Silver

This morning gold lost 0.02% as the dollar Index (DXY) halted a three-day slump, with the U.S. currency stronger against 12 of 16 major peers. However silver increased 0.10%. Precious metals prices dropped about 1 percent yesterday after the Federal Reserve linked its monetary policy to unemployment, raising concerns that future economic stimulus could be limited.

Gold futures closed below $1,700 per ounce while silver fell more than 4%, on strong yearend profits booking. Metals declined on Thursday, on fears that Federal Reserve might withdraw its economic stimulus if the job market improved.

The US dollar rose while was little changed against the euro, after regional leaders moved closer to a banking union and gave Greece its bailout money. The dollar index, which measures greenback’s performance against a basket of six major currencies, edged up to 79.925, from 79.858 in North America on late Wednesday. US Dollar Index (DX) erased earlier losses of the previous day and ended 0.2 percent in yesterday session. Gains were registered on account of rise in the risk aversion resulting from pessimistic statement by Speaker of the house John Boehner that there are serious difference amongst US law makers over the fiscal cliff.

Eurozone finance ministers agreed on a deal that gives the European Central Bank extensive powers, including power to grant and withdraw banking licenses, investigate institutions and fine banks that fail to abide by the rules. It also paves the way for Europe’s rescue fund to directly aid the euro zone’s troubled banks. Greece’s euro partners agreed to hand over the next disbursement of the country’s bailout loans, which will prevent it from going bankrupt and potentially trigger more turmoil in financial markets. The cash-strapped country will get a total of €49.1bn ($64bn) between now and March, with €34.3bn due in the coming days, officials said.

Fundamental supporting gold yesterday included a report that showed that gold importers in India sprang back into action, picking up bargains in the peak wedding season, as prices fell to their lowest level in nearly a week, dragged by a stronger rupee and weak global markets. Demand for gold has continued to grow in 2012 and is predicted to increase further next year.  Research by Source, a provider of exchange traded products, shows that inflows into European gold ETPs have reached $6.8bn this year to date, constituting a staggering 15.4 percent growth.

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, stood at 1351.42 tons by Dec 13, remains unchanged from the previous business day. Holdings in the world’s largest silver backed exchange-traded fund iShares Silver Trust stood at 9871.29 tons by Dec 12, up by 42.15 tons from the previous business day.

Silver and other metals declined, as an impasse in US budget talks showed little sign of being resolved and a Federal Reserve decision to tie its monetary policy to unemployment raised concerns that its economic stimulus might be limited.