The Daily Nugget: China’s New Leader Is Good For gold

This morning, the gold price has started the day a little low thanks to a drop in stocks; traders often sell bullion in order to cover losses from equities. It has found some support however due to uncertainty surrounding the fiscal cliff, poor data from the eurozone and the brewing Middle East situation.

Gold and the fiscal cliff
Yesterday President Barack Obama used his first press conference since the election to lay the resolution over the fiscal cliff on the Republican Party’s shoulders. Obama wants the Republicans to agree to a tax hike for the wealthy whilst keeping the low tax rates for the middle class. Both parties seem to agree on the latter part, but not on the first.

The Republicans believe revenues should be found in areas such as Medicare. Taxing the wealthy is unlikely to be something Obama will back down on given its centrality to his election campaign. He is also seen to be playing a stronger hand this time around, whether this means a resolution over the fiscal cliff is uncertain.

Obama’s press conference certainly wasn’t enough to reassure markets which are already shaken up by the crisis in the Middle East where tensions seem to be rising once again between Israel and Hammas.

Also over in the US yesterday, the Fed released their latest minutes. Following Obama’s campaign analysts have been bullish in regard to seeing further stimulus measures thanks to the pretty much guaranteed presence of Bernanke until 2014. Yesterday’s minutes gave us further confirmation of this as "A number of additional participants indicated that additional asset purchases would likely be appropriate next year."

Those interested in gold investment should be looking at this period of calm in the gold price, prior to the fiscal cliff palaver and 2013 Federal Reserve meetings as a potential buying opportunity.

Other developments look good for gold investment
Xi Jinping has been confirmed as China’s new leader, which isn’t particularly surprising. He follows in the footsteps of Hu Jintao who has seen extraordinary growth during his tenure. However, the growth has driven the inequality gap wider, not helped by problems exacerbated by the one child policy. Whilst the government have promised to double income per capita from 2010 levels by 2020 analysts are weary of the feasibility of such a plan.

This morning we have seen a mixed bag of data from the eurozone. Later today both jobs and inflation data will be released in the US. Jobless claims are expected to have declined by a tiny amount whilst CPI is on the up.

The mainstream media are jumping on news of the drop of 11% in gold demand in the last 3 months. According to the World Gold Council this was thanks to a slowing in purchases from both China and India. The mining lobby group do, however, see positive signs for gold investment in India in the last three months of the year.

Given the signs of further stimulus from the supplier of the world’s reserve currency, China’s talk of doubling income per capita and growing global economic uncertainty gold’s image as a safe-haven is likely to endure for a significant period of time.

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