US Uncertainties Weigh on Precious Metals

Gold edged lower this morning (1712.05) as the uncertainty about the U.S. budget talks kept investors on the edge, offsetting positive news from debt-laden Europe that helped keep the euro steady near its highest level in more than one month. Republicans and the White House have made little progress in their negotiation to avert the automatic kick-off of $600 billion tax hikes and spending cuts early next year, dubbed as the “fiscal cliff”, which could push the world’s top economy into recession. The stalemate in the negotiation made investors reluctant to jump in to the market, despite support from currencies. A softer dollar makes commodities priced in the greenback cheaper for holders of other currencies.

Precious metals prices firmed yesterday  in line with stock markets and the euro after Chinese data signaling quicker growth sharpened the appetite for assets seen as higher risk, though uncertainty over the U.S. budget talks kept a lid on gains.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,348.83 tons, as on Nov 30. Silver holdings of ishares silver trust, the largest ETF backed by the metal, declined to 9,757.86 tons, as on Nov. 30.

The dollar index, which tracks the US unit against six major currencies, traded at 79.86 on Monday, down from 80.23 in North American trade on late Friday. The euro hit a six-week high against the dollar on Monday, as some investors trimmed bets against the single currency on signs that Germany may be open to a Greek debt write-down. Greece offered 10bn Euros ($13bn) to buy back bonds, issued earlier this year as the bailed-out nation attempts to cut a debt load that may threaten future international aid.

The price increase in gold has increased the demand of recycled gold in the Indian market. In the first three quarters of 2012, the country recycled 89 tons of gold as against 36 tons in the same period last year.

Republicans rejected Obama’s demand for higher tax rates, countered with a $2.2 trillion deficit-cutting plan that would trim Medicare and social security and cap tax deductions for top earners. The Republicans seeks $800 billion in tax revenue in the next decade and would slow the growth in social security cost-of-living payments. It would also reduce entitlement program costs by at least $900 billion, raising the Medicare eligibility age, and cut $300 billion in discretionary spending.

The White house the plan does not meet to test the balance and Obama’s plan of raising taxes might continue to weaken investor sentiments as uncertainty over the fiscal cliff prevails and would continue to weigh on metal prices.

In Europe today, Spain remained optimistic of receiving 37 billion euros of bailout fund for its ailing banks still markets would eye the eurozone finance ministers meet in Brussels. As a part of wider crisis, fighting plan the Ministers would discuss setting up common bank supervision which might cause some weakness in the euro, pressurizing gold prices.

Silver drifted down this morning to trade at 33.450 after industrial metals prices rose yesterday on the latest sign that China’s manufacturing industry is getting healthier, even as the U.S. sector slows down. With precious metals weakening this morning silver is off by 0.309 cents.