Last Updated : 17 December 2012 at 12:00 IST
Many have taken to forecast the price of gold for next year. But the intellectual capital invested in this exercise can be pure waste of time and resources as long as the fiscal cliff talks reach a definitive turn: a make-or-break scenario which is reliable and can be settled down for once and for all.
First of all, I will tell you some fiction. This is not fiction per se, but a set of arguments that you may hear in the coming days. Historical representation of future can sometimes be termed fiction.
The fiction
Fiscal cliff or not, QE or not, gold is all set to climb new highs!
If the current slump in yellow metal is deterring you from going long on gold, then I would say you are missing the last bus headed for a gold rally destination. Because, gold may not be able to come down this low yet again as it would possibly be busy with a journey northward.
February may see a surge in gold prices as investors return with a refreshed mind either to take the bull by the horns or to take the bear by its claws. The year-end slump or December-effect is expected to get offset by the April-effect or new (financial) year surge.
At the end of the day, bulls are bulls!
The kicking in off QE4 can lend additional support to gold starting January. (December 31 and lo, Operation Twist is history!)
Also, the fiscal cliff talks--stalled by the unfortunate and deplorable Connecticut shooting incident in a school there--would be arrived at a consensus in January.
As news agencies report, it may sometimes not be possible for the President and his Republican counterpart for talks on fiscal cliff to arrive at a consensus this month. This was also predicted by the legendary investor Warren Buffet.
The problem is that, though the effect of going off the fiscal cliff would take time to take effect in a practical way, investors would be spooked by the general lack of consensus in US Congress and the possible recession.
This, in turn would see massive sell off in commodities and equities in January. Dollar may see a surge in investments in these months as there would be a short-term rush for US treasuries, the traditional safe haven.
At the end of the day sentiments are sentiments. But once the talks are re-started and US gains its feet back, by April, a surge in commodities, especially gold and silver can be expected.
The 'facts'
But things may not be this simple! Now I would outline the facts. These are not facts per se, but some fiction. Futuristic representation of facts may also be termed fiction:
If US goes off the fiscal cliff, that would hurt the world economy badly. And if the debt ceiling is not raised once again by the US Congress, it could be pretty much worse. As going of the cliff can trigger a recession, the Congress may find it to be an ample reason to resort to austerity. This would in-effect be a downward spiral not only for markets, but also for the world as whole. While going off the cliff could trigger a recession, its subsequent outcome and impacts are hidden in future.
The world economic system may possibly come to a grinding halt as Europe too would go down with America and the fickle recovery in Emerging Markets, including China would be derailed, further aggravating the crisis.
Are we seeing a global depression in the offing? Possibly...and the prospect is least exciting.
Killing a mocking bird
So, if somebody offers a price prediction for gold in the coming days for the said days, try to secure a shoot-at-sight order for him.
Predicting the price of gold for uncertain times is least reliable and chaotic times unheard of.
Latest Update
“The first real movement in the “fiscal cliff” talks began on Sunday, with Republican House Speaker John Boehner edging slightly closer to President Barack Obama’s key demands as they try to avert the steep tax hikes and spending cuts set to take effect unless Congress intervenes by 31 December”, Live Mint has reported.
As published in: http://www.commodityonline.com/news/why-gold-prices-should-not-be-predicted-until-after-a-fiscal-cliff-solution-51834-3-51835.html
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