The Daily Nugget: Even Scrooge Would Invest In Gold At These Prices

This morning gold continues to hover around $1,700 as news of developments over Fiscal Cliff discussions is awaited. The gold price has recovered from its one week low, and silver has returned from a one-month low.

The S&P 500 finished yesterday at a near 2-month high as hopes were raised that a meeting between Obama and Boehner would be able to head off the fiscal issues, however overnight the dollar-index hit a two-month low as concerns over the resolution of the Fiscal Cliff boosted Asian shares.

Whilst the gold price shows little sign of doing much exciting in the run up to Christmas, holdings in gold-backed ETFs remain stable demonstrating the faith in gold and providing it with support around $1,700. Both precious metals appear to be being held hostage by US negotiations at present, which distract from the reasons as to why gold investment is a wise decision. According to ETF Securities the fiscal cliff will be the point of discussion clouding the precious metals markets until the end of the year.

Global economic woes
Meanwhile in the eurozone the bad news keeps on coming, pushing European stocks and the currency lower. The Bundesbank said Germany had seen significant contraction this year, whilst eurozone exports fell by 1.4%, month-on-month in October.

Around the world evidence of central banks’ on-going monetary easing approaches to the financial crisis continued; Australia’s central bank decided to cut interest rates to lows not seen since 2009. However India, who are currently witnessing one of the highest levels of inflation in the emerging world decided to keep rates at 8%.

A research paper released this morning from the Bank of England claims the QE programme is still stimulating economic growth by impacting broad money and boosting demand. It may well be doing those things but it’s also boosting inflation which will be evidenced in today’s inflation figures from the ONS.

Britons will be unsurprised to see inflation figures at the same level for November; many are blaming the 2.7% on rising energy and food prices. For our thoughts on so-called rising food prices read our latest research piece on "What your Christmas turkey can tell you about the state of the economy." We expect to see inflation rise to 3%, if not higher, in early 2013.

The IMF watched Argentina’s deadline to provide more accurate economic data pass-by last night. It had been warned that if it failed to submit the information regarding growth rates and inflation it faced expulsion from the support set-up. Considering the criticisms which followed the IMF’s loans to Argentina in the early 2000s it is perhaps unsurprising the country want little to do with them now.

Scrooge sees bargain in gold investment
Those who are considering whether or not to buy gold bullion should enjoy this period when gold behaves strangely in the face of the looming fiscal cliff. The gold price is, as many are pointing out, at a good price to invest. No matter what compromise and agreement is reached, the fiscal cliff solution will not, as it seems many are hoping, the solution to the economic crisis.

The Fed will continue to stimulate the economy and in doing so will encourage others to carry on following like sheep. This, of course means further currency devaluation and greater risks in the economies. Unlike fiat currencies, gold has more things going for it than not right now.

Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.