In the Singapore market, gold inched down in thin trade on December 27, with investors keeping a close watch on talks between the White House and Congress to prevent the US economy from plunging into recession next year. Gold fell $2.13 an ounce to $1657.36. It has come off a four-month low struck a week earlier, but remains below a record high of around $1920 hit in September 2011. For the year, bullion is up around six per cent on track for a 12th straight year of gains.
A deal to avert the so-called fiscal cliff of tax hikes and spending cuts that kick in at the start of next year and threaten to tip the world’s largest economy back into recession would offer trading direction to financial markets.
The United States faces $109 billion in across-the-board spending cuts starting in January unless a deal is reached to either replaced or delay them. Democrats want to switch the spending cuts to tax increases for the most part.
While gold is typically a safe-haven asset that gets a boost from economic uncertainties, it has increasingly been behaving like a risk asset and could also gain if a US resolution comes through. But most gold investors are waiting for the outcome of the US fiscal talks after the House of Representatives failed to pass its own budget measures a fortnight back.
Despite the recent losses, gold remains set for a 12th straight year of gains on ultra-loose monetary policy by leading central banks, concerns over the financial stability of the eurozone, and diversification into bullion by central banks. Gold appeals to investors as a hedge against inflation.
Bullion hit an all-time high around $1,920 in September 2011 when a worsening debt crisis in Europe sparked a buying rush. Hedge funds and money managers slashed their net long gold positions in the week to December 18 to their lowest level since the end of August, according to the Commodity Futures Trading Commission’s Commitments of Traders report.
Gold prices may hit $2,000 an ounce in 2013 as costs and barriers to production restrict supply, while demand from central banks and Chinese consumers keeps climbing, the world’s biggest gold producer predicts.
Barrick Gold Corporation Chief said finding new mines, negotiating permits and dealing with communities and governments is proving tough, while building costs for new mining capacity have sky-rocketed. At the same, time economic uncertainties and new investment tools in Asia have driven more investors into the precious metal, boding well for prices, he said.
“If demand continues to rise, which we think it will through China buying more gold, more investment demand for gold, (and) central banks continuing buying more gold rather than selling as they used to, I feel quite comfortable predicting that gold prices will be at $2,000 within the next year, perhaps higher,” he said.
The high prices, and expectations of more rises should encourage producers to expand but Barrick is not alone in facing challenges with new projects. Earlier this month it raised its cost estimate for its vast Pascua Lama mine on the Chile-Argentina border to $8 billion-$8.5 billion from $7.5 billion-$8 billion, and pushed back the date when the project will begin producing.
On December 26, oil advanced to a two month high in New York as US lawmakers prepared to resume budget talks and the United Arab Emirates said it arrested members of a terror cell that was planning attacks on crude-exporting nations.
Futures were little changed in New York after rising the most in five weeks on December 26. The US Treasury Secretary said he will take “extraordinary measures” to postpone a debt default, while President Barack Obama and Congress retuned to Washington for talks aimed at averting more than $600 billion in tax increases and spending cuts that start January 1. The UAE coordinated with Saudi Arabian officials to arrest members of a terror group.
Crude oil for February delivery climbed $2.37 to $90.98 a barrel on the New York Mercantile Exchange, the highest settlement since October 18. Brent oil for February settlement rose $2.27 or 2.1 per cent to $111.07 a barrel on the London based ICE Futures Europe.
A failure to reach an agreement on the budget plan might push the US, the world’s biggest crude consumer, into recession for the first half of 2013. The government will hit its statutory debt ceiling on December 31. To avert a default, the Treasury will create about $200 billion in headroom under the debt limit, which would normally last about two months.
Brent crude is poised to trade above $100 a barrel for a third consecutive year in 2013 as tension in the Middle East threatens to disrupt supply and global demand is buoyed by Chinese imports.Oil will average $110 next year, according to the median of 30 forecasts compiled by Bloomberg, compared with about $111.70 so far in 2012, on course for the highest-ever annual price. Brent is more likely to overshoot the 2013 median than miss it as Iran spars with the west over its nuclear programme and the conflict in Syria deepens, Morgan Stanley and UBS AG said.
Rising prices may pose a barrier to a recovery in the global economy amid Europe’s sovereign debt crisis, US budget disputes and signs of slowing growth in Asia. Record revenue for oil producers helped ensure supply stability this year, encouraging Saudi Arabia to pump at its highest rate in three decades, while financing shale projects in the US that fostered the nation’s biggest production increase in 50 years.
Iran’s oil exports have collapsed 50 per cent from year-ago levels because of tightened restrictions on sales imposed by the US and Europe this summer, the International Energy Agency said.
Daily exports will probably slide to about one million barrels early next year, compared with 2.5 million at the start of this year, the Paris-based adviser to consuming nations said in a December 12 monthly report.