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Gold Attractive in Economic Uncertainty

Written By Brian Hicks

Posted January 10, 2013

More battles lie ahead for President Obama and Congress after the recent bruiser over the fiscal cliff affair. Sustained disagreement could lead to the nation defaulting on its debt, which would trigger a downgrade in U.S. credit rating.

A mix of these and other factors caused gold to strengthen yesterday alongside a rise in equities.

Spot gold rose 0.3 percent to hit $1,663.30/oz. Futures for December delivery were at $1,663.60, up by $1.40/oz.

Gold continues to look attractive for investors leery over the fragile state of the economy. Continued demand from Asia is also propping the metal up, and that demand is expected to strengthen over the coming months.

Reuters reports:

“We find ourselves just ahead of Chinese New Year, which seasonally is one of the strongest times of the year for gold demand, and seven weeks away from the new deadline in the U.S. political system, and we’re surprised at how low gold prices are,” Natixis analyst Nic Brown said.

Meanwhile, continued expectations of stimulus action by the European Central Bank as it works to support the euro appear to have kept the euro reasonably steady versus the U.S. dollar.

Today, the ECB meets to decide policy moving forward, and investors are in a holding pattern in anticipation of that meeting’s outcome. And Spain and Italy will hold bond auctions today, and investor reaction to that could indicate some of the contours of the European debt market right now.

In India, a major consumer of bullion, gold purchasing seems to be slowing down a bit after a strong start; the Shanghai Gold Exchange mirrored this behavior. And New York’s SPDR Gold Trust (NYSE: GLD) gold-backed ETF holdings slipped for a second consecutive day, down 11 tons from the beginning of the new year.

It’s interesting that gold continues to lead platinum (spot platinum is up 0.8 percent at $1,586.50/oz), but that lead is gradually closing.