Last Updated : 04 December 2012 at 11:35 IST
The US fiscal cliff issue is something of a political drama. It is, strictly speaking, a showdown of egos between the democrats and the republicans.; the latter having lost the presidency want to hide the exasperation and the former, having retained the presidency want to binge on it.
This equation has got a great deal to do with gold prices. If US goes off the cliff, then gold prices would reach stratospheric levels, if it does not make it off the cliff, then the continuing Eurozone issue and the possible QE4 would lent the commodity some support.
Bart Melek, head of commodity strategy for TD Securities said to Kitco, “We fully expect the expiring Operation Twist program will be replaced with an unsterilized longer-term bond purchase program, which we think will be very conducive to higher gold prices.”
Yes, the Operation Twist program is coming to an end and given the grim labour market scenario may see US continuing with printing of money. The ISM's latest Employment Index registered 48.4 percent, a decrease of 3.7 percentage points, which is the index's lowest reading since September 2009.
Since Ben Bernanke has tethered QE initiatives to a rebound in the economy as reflected by the job markets, the QE 4 cannot be much far from here.
Unless the politicians go insane, the chances are more that the fiscal cliff issue would be resolved. If not, it would be a political suicide for republicans as much as an opportunity of victimization for team Obama.
The Obama team could always say that republicans did not let them do it—allowing tax cuts for middle-class households and taxing the super-rich. And mind you, the US is a middle-class country where just 1% votes of super-rich would not let you to see through the elections that are being awaited in continuum. If you let US off the fiscal cliff, 99% Americans would suffer; and they as a race, do not easily forget or forgive. History is a testimony to this fact.
So, the gold prices may actually come down as the fiscal cliff issues is resolved but would still maintain the levels given that FOMC meet scheduled next week could possibly proclaim a QE4.
And if insanity prevails and US falls off the cliff, gold would fire all booster rockets.
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