Monday saw the dollar fall further—coming on top of a 1 percent dip last week—as violence escalated in the Middle East between Israel and Hamas in the Gaza Strip.
The dollar drop, combined with the increasing pressure of the oncoming fiscal cliff, caused gold to make gains.
Spot gold hit $1,723.9, a rise of 0.61 percent, at 12:19 GMT on Monday, while U.S. gold rose to $1,723.90, up by 0.5 percent.
“The fact that we are holding above the $1,700 level is giving investors the kick to get back into gold,” said Saxo Bank vice president Ole Hansen.
Ongoing talks between Congress and President Obama to try and figure out a way to avoid the hefty tax increases and spending cuts that will kick in automatically in January of 2013 if no budget deal can be worked out are keeping investors wary.
As usual, the precious metal is seen as a safe haven that offers relative immunity from the uncertainties of war and politics. The counterpoint to that, of course, is that we should expect gold to lose its edge if Congress and the Presidential team do achieve some kind of deal to avert the fiscal cliff.
Although markets worldwide seemed to make gains after last week’s selloffs, with investors banking on a likely deal before the crisis hits, the process is hardly expected to be smooth sailing, meaning gold will likely continue riding high until a deal is announced.
Also, once the immediate crisis is averted, the Fed’s money printing will keep interest rates low in order to promote consumerism—that always carries the risk of stoking inflation, meaning gold will again be valued as a hedge against inflation.
And as far as the Middle East is concerned, gold hasn’t seen a huge impact from the Israel/Hamas conflict so far; that could change quickly, however, if the conflict expands or sucks in other countries.
New York’s SPDR Gold Trust (NYSE: GLD), the biggest gold-backed ETF, had its holdings go up by 0.22 percent last Friday.