Gold jumped to a new nine-week high of 1272.55 in overseas trading on Friday before prices moderated somewhat during the New York session. The yellow metal appears poised to notch it’s fifth consecutive weekly gain.
The yellow metal has been boosted by a broad flight to quality amid an exodus from emerging markets, which also sparked selling in most other stock markets. Besides gold, the yen, Swiss franc and longer dated U.S. Treasuries have benefited from safe-haven flows.
As markets look ahead to next week’s FOMC meeting, the sharp drop in the 10-year yield this week (currently 2.74% -24 bps in the past month) may give the Fed the clearance it needs to do another round of tapering. There has been speculation in recent weeks that the Fed might hold-off on a further cut to asset purchases, given the weak December employment data.
Short-term rates on the other hand jumped today amid heightened apprehension surrounding the looming debt ceiling debate. The debt ceiling was temporarily suspended last October, but is slated to be reinstated on February 7. That’s just two-weeks from today. Since the suspension, we’ve added more than half a trillion dollars to the national debt. As of January 22, total public debt outstanding is $17,273,488,616,875.18.
The flight to quality benefit that gold is seeing is primarily the result of heightened growth risk in emerging economies. If the debt ceiling debate heats up in the coming weeks, that will likely spur further interest in gold as a safe haven.