Gold finds support in U.S. debt limit delays, stimulus measures

The U.S. Comex gold futures continued to rise this week, jumping 1.40% after rising 0.71% last week. The S&P 500 index has been flat while the Euro Stoxx 50 index has dropped 0.60% this week. The MSCI all-country index returned 3.12% during the first half of January, which is a very respectable start. The CRB Commodity index has risen 0.89% so far this year while the Dollar Index is flat. The currency in the spotlight has been the Yen, which has weakened about 2.3% against the dollar, and about 2.8% against the gold futures this year.

Looming U.S. Debt Ceiling

The U.S. Treasury Secretary Tim Geithner warned on Monday that the extraordinary measures used to prevent the $16.4 trillion debt ceiling from being breached will exhaust at the latest in early March. Despite the passing of the recent tax deal, the government still has to agree on a plan to prevent the automatic spending cuts from happening at the end of February. President Obama said that he would not negotiate over the debt limit with conditions on spending cuts.

Stimulus Measures Continue

The Fed Governor Ben Bernanke gave no signal yesterday that he would ease off the pedal on quantitative easing. He was still not satisfied with the economic improvement so far in the U.S. economy, especially in the labor market. In the meantime, the January New York Fed general economic index fell to minus 7.8 from minus 7.3 last month. On Jan. 11, the new Japanese Prime Minister announced his 10.3 trillion yen fiscal package to revive economic growth. He also called for bold moves from the Bank of Japan to engage in "unlimited quantitative easing", and to raise the inflation goal to 2%. The weaker growth, the U.S. debt ceiling discussions and the hopes for more central bank stimulus have been supporting gold prices.

What to Watch Next Week

The highlights of next week will include the E17 meeting in Brussels on Jan. 21, the Bank of Japan announcement of the target rate and monetary policy and the European Finance Ministers meeting in Brussels on Jan. 22, the January flash manufacturing PMI index for China, the Euro-17 and the U.S. on Jan. 24, and the December U.S. new home sales on Jan. 25.

About the Author
Austin Kiddle

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.

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