SINGAPORE: Gold prices receive a boost as US lawmakers finally approved a bill to address the fiscal cliff.
The precious metal rose as much as US$29 an ounce from last week's close of US$1,655.70 a troy ounce on December 28.
The deal struck in the US Congress has helped arrest the threat of the world's largest economy falling into a deep recession.
But some analysts said it is just a knee-jerk reaction and the rally may not be sustainable.
Gold is often seen as a safe haven for investors and is commonly used as a hedge against inflation and a store of wealth especially in times of uncertainty.
Despite a bullish outlook on gold in 2012, the precious metal only managed a modest gain of seven per cent from the start of the year.
It also underperformed against equities which saw Asian stock markets gaining about 20 per cent. For instance the Hang Seng Index up 22.9 per cent , STI gained 20.6 per cent, Nikkei's up 23 per cent in 2012.
The latest move by the US Congress to pass a bill to end the fiscal cliff crisis has lifted sentiment on gold investing.
Some investors expect gold prices to propel higher since the deal may lead to a weakening of the US dollar and this means gold prices will rise as investors switch into the precious metal.
Yet, most experts are not too sanguine of its prospects and expect the impact on gold prices to be muted at best.
"We have the debt ceiling issue which we address somewhere in end February, early March and then we expect a gradual recovery in the US economy in the second half of this year," said Roy Wellington Teo, a foreign exchange and precious metals strategist at ABN Amro (Asia).
He added: "Therefore, we think a stronger US dollar towards the second half of this year could potentially lead to gold prices trend lower towards US$1,500 an ounce end of this year."
Swiss lender UBS expect gold prices to make a steady climb later this year when investors start to worry about inflation when economic growth returns.
During inflation, the value of key currencies like the US dollar and Japanese yen will weaken and this will prompt investors to switch into gold and boost prices.
US said it expects the precious metal to reach USD$1,950 a troy ounce by the first half of this year and is likely to show better performance in 2013.
Dominic Schnider, head of NTAC Research at UBS, said: "Overall the gold price will definitely lag equities but it is still going to be a good asset in your portfolio if you consider we still have a lot of risk factors out there including monetary debasement which is actually a big topic especially with the recent development in Japan."
Looking ahead, experts said gold prices will get a further boost if the US Federal Reserve extends its stimulus programme.
This is expected to inject more liquidity into the financial system.
Avtar Sandu, a business development senior manager at Phillip Futures, said: "We have low interest rate environment, we have all the QEs and we have all the central banks that are buying gold. All these will slowly drive the prices of gold forward."
Yet, some analysts warned that it may not be all glitter for gold this year.
They said that inflation may ease in 2013 and concerns over inflation may be misplaced.
- CNA/fa
Gold rallies on fiscal deal
This article
Gold rallies on fiscal deal
can be opened in url
http://newscenometer.blogspot.com/2013/01/gold-rallies-on-fiscal-deal.html
Gold rallies on fiscal deal
