Gold ended up essentially flat in New York trading, closing up 40 cents today, thanks to a spike in prices in the morning that erased overnight losses in the Asian market. That spike may have been due to Richmond Fed chairman Jeffery Lacker speaking today, and stating he believes that the U.S. economy would probably not see 6.5% unemployment for another two to three years. In the same speech, he warns of a “material” risk of rising inflation in 2014 and beyond, as the Fed continues to buy $85 billion of securities with created money.
Volume was very light today, as expected. Most players are staying on the sidelines until a budget deal and the debt ceiling cap is raised. Both the Treasury and the Fed have warned they have few options for juggling the books to prevent a U.S. government default should Congress not forge a new debt agreement.
U.S. businesses are still delaying any investment in the face of the financial uncertainties regarding taxes as the fiscal cliff negotiations stall. The Empire industrial report showed an unexpected contraction in the latest survey, reflecting the ongoing freeze we have seen in industrial investment since the election.
Precious metals are expected to continue to trade in a close range for the rest of the week, barring any unusual developments. The large trading houses are adjusting their outlook for gold for 2013, with the estimates ranging from $1,815 to $2,200 an ounce, as central banks worldwide continue to buy gold to diversify their reserves. We’re keeping an eye on the Basel III accords, which may reclassify gold as a Tier 1 reserve asset on a par with cash and government bonds. If this happens, look for a large upsurge in physical gold purchases.