The fiscal cliff drama drew to a close with an extremely late-stage deal on Tuesday night, and in consequence gold started gaining on Wednesday.
Although the deal brings the U.S. back from over the cliff (yes, technically it had gone ‘over’ for a day), it still received heavy criticism. All-important Asian bullion investors remained unimpressed, and due to the half-baked nature of the deal, more budget drama lies just ahead.
Gold rose to $1,681.55 on Wednesday morning, rising $7.01/oz. Gold for February rose to $1,682.30/oz, up $6.50/oz. Overall, gold rose 7 percent over 2012, marking the twelfth consecutive year of increases for the precious metal.
Interestingly, despite gold’s traditional status as a safe hedge against the market’s fluctuations, recently it has mimicked the performance of industrial commodities by following the market up or down.
Due to the fact that gold is often combined with equities in the portfolios of many investors, bullion is generally very closely interested in the stock market.
Meanwhile in Asia, stocks rose to their highest in five months, and the last-minute fiscal deal pushed the dollar down.
“Whatever happens in Washington, we suspect gold will likely do better over the next few weeks as the colossal failure of political will to get America’s fiscal house in order should provide fodder for the gold bugs to bid prices higher,” said Edward Meir, metals analyst at brokerage INTL FCStone.
As far as the deal is concerned, it’s a bit of a compromise on both sides. It will protect many millions of middle-class households from seeing their taxes going up, but it will on the other hand raise taxes for those making over $450,000 annually.
But more than 2 million unemployed workers will continue to receive their benefits. Automatic spending cuts to the Pentagon and various other agencies will be put off. All in all, it’s better than taxes going up for everyone.