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As Fiscal Talks Dominate Gold ETFs Physical Bullion Sales Surge

December 19, 2012 - The price gold continued to steady in early trade on Wednesday following a slide to 3-1/2 month lows during the previous session as stocks rallied and the euro hit a multi-month high against the dollar on relative progression in U.S. fiscal cliff negotiations.

The spot price of gold hit $1,669.26 per tory ounce, little changed from the $1,669.54 per troy ounce from late Tuesday. U.S. gold futures for February shed a scan $0.90 to $1,673.70.

Widely acknowledged by many analysts, the U.S. fiscal cliff has brightened growth prospects for raw commodities, particularly precious metals. Some analysis has placed uncertainty over the fiscal cliff as a main driver for precious metals since the U.S. election.

There has been some confusion, however, over the apparent benefit to precious metals and the price volatility in markets over the past weeks. Businesses remain reluctant to invest in precious metals because of the uncertainty surrounding potential automatic tax rises and benefit cuts if the U.S. Congress doesn’t agree to a new fiscal program. Minimal market data is set to be released in the final weeks of the year and budget talks will be a strong influence on markets.

During this time, holdings of gold ETPs extended their all-time highs to $84.6 billion during a move by investors to hedge against worst-case outcomes from the cliff discussions. While we have heard quite a bit from the media about the fiscal cliff, we do not always hear the strong moves investors are making in response to it, which is significant in terms of explaining how big an issue it really is.

Additionally, since the reelection of the President, the physical bullion market has been on a sales spree with orders for coins from the U.S. Mint to distributors at multi-month and multi-year highs. Sales for American Eagle Gold Coins reached 136,500 ounces in November with an additional 45,500 ounces being sold so far in December. The Mint has sold out of 2012-dated American Eagle Silver Coins as of Monday with 33,742,500 ounces being sold for the year, the third highest sales level for the coin since the American Eagle Silver Coin was introduced in 1987. Only 2011 with 39,868,500 ounce and 2010 with 34,662,500 ounces produced better sales levels.

The statistics from the U.S. Mint indicate a far more aggressive physical market than the volatility of the spot price and futures market would suggest. While uncertainty over the fiscal cliff is clearly a main driver, little about it needs to be understood to see the effect. Investors are buying gold to hedge risk and store wealth.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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