Weekly Gold and Silver Market Recap for Nov 16, 2012

Nicholas Wilsey

11/16/2012 2:32:00 PM

GOLD PREPARES FOR FISCAL CLIFF

As the week comes to an end, the news surrounding the United States’ fiscal cliff is the main topic of conversation. The question remains what, if anything, will be done to avoid this possible recession making event. “What people don’t like in markets is uncertainty,” said Gilles Sitbon at Sycomore Asset Management in Paris. “People are waiting for one thing that could make the market go down. People are ready to pull the trigger. And if nothing happens, then you can get a grind higher. It’s confidence building.”

Long-term stability and safe haven appeal have proven Gold is a popular investment in times of such uncertainty. Precious Metals refiner Heraeus said in a report, “Whilst the uncertainty around the U.S. presidential elections came to an end with Obama’s win, the so-called fiscal cliff is now the omnipresent topic. It describes cutbacks and tax increases in case a budget for new indebtedness cannot be agreed. Due to the strong opposition in Congress, difficult negotiations can be expected and hence new volatility and uncertainty,” which historically have been very supportive of the Gold price.

While the stock market has been falling in fear of the fiscal cliff looming over the United States economy, Gold has moved in a more positive direction, seeing more than a three percent boost over the past week. “I think many people feel that the can will continue to get kicked down the road. The outcome of the election seems to show there is not an appetite for major tax increases or meaningful cuts in spending,” Christopher Blasi, president of Neptune Global Holdings LLC in Wilmington, DE, said. “So even if there are compromises to avoid the cliff in the short-term, the fundamentals are still there for Gold to keep rallying.”

On Friday, congress and the president began negotiations to try to find common ground on $600 billion in tax hikes and across-the-board spending cuts that will otherwise automatically take effect in January. The fear is that if our leaders don’t come to terms, the measures could push us back into recession. Rebecca O’Keefe, head of investment at Interactive Investor in London, said, “Investors will be hoping that there is enough collective desire to reach agreement, [but it is] almost inevitable that discussions will be protracted and go down to the wire, which is likely to keep markets erratic and volatile over the coming weeks.”

EUROPE’S BALANCING ACT

This week in Europe brought forth some accomplishments and some anger. While the U.S. was observing a holiday on Monday, Greece was hard at work. The Greek parliament has come to an agreement for new austerity measures in 2013 along with a structural development plan to meet the requirements for the next release of 31.5 billion euros for use as emergency loans for the eurozone. It is still unknown whether Greece will be completely bailed out of its financial crisis as a compliance report by the troika calculated a total of 32.6 billion euros would be needed by 2016 in order to sustain the fiscal disaster. “I'd like to see if Greece has fulfilled all its obligations and then I'd like to hear the (EU/IMF) troika report because it depends on the Greek government having found a solution with the troika, and I haven't read anything on that,” German Finance Minister Wolfgang Schaeuble said.

With this action by the Greek parliament, the European Union has given Greece a two year extension to the monetary bailout program. Without this leeway, there was a good chance the country would default and possibly send them out of the union completely. Greece passed new measures to help with their financial woes; however, it is not winning over doubters. “The key risks concern the overall policy implementation, given that the coalition supporting the government appears fragile and some components of the program face political resistance, despite the determination of the government,” the report by the troika made up of the European Commission, European Central Bank and IMF said.

While these actions may have been a step in the right direction in the eyes of the European leaders, the citizens of the region did not see it in the same light. As governments in Europe start to implement spending cuts to help curb the region’s growing debt, citizens have taken to the streets in protest. Spain and Portugal have seen a massive stoppage of flights, ports, trains and factories. This is the first time the two countries’ major labor unions have organized one general strike. While the governments try to appease the masses, the people don’t see it helping. “I’m on strike because those who work are basically being blackmailed into sacrificing more and more in the name of debt reduction, which is a big lie,” said Daniel Santos de Jesus, who teaches architecture at the Lisbon Technical University.