US GOLD OPEN - Fiscal cliff jitters fray gold market

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Tom Jennemanntom.jennemann@fastmarkets.comSenior North American Correspondent973-204-3383

Orlando 06/12/2012 - Gold futures were dragged modestly lower in the US on Thursday by a stronger dollar and anxiety over the fiscal cliff.

Meanwhile, BNP Paribas has joined Goldman Sachs in cutting its price forecast for the yellow-metal.

Gold for February delivery on the Comex division of the New York Mercantile Exchange was last down $4.20 at $1,689.60 per ounce. Trade has settled into a range of $1,688.20 to $1,697.80.

“Dollar strength is weighing on the asset class, combined with apathy as participants await progress on the US fiscal cliff talks,” Standard Bank said in a note.

“We believe that the precious metals, gold in particular, will find it difficult to sustain upside this week, at least until this Friday’s non-farm payrolls data, unless there is significant progress on the fiscal cliff front. This appears unlikely just yet,” it added.

President Barack Obama said yesterday that he is willing to let the economy fall off the so-called fiscal cliff if Republican lawmakers do not agree to a tax increase on the top two percent of wage-earners. The parties have until the end of the year to come to a compromise. Inaction would trigger huge spending cuts and new taxes that could slow growth and tip the US economy back into recession.

In gold-specific news, French bank BNP Paribas said in a report that market sentiment towards gold has been much more uncertain in 2012 than was the case in previous years. But it still expects gold to hit a new record high in 2013 due to further monetary easing, less tail risk related to a breakup of the eurozone and continued support from physical demand.

It forecast the metal to average $1,865 in 2013 - a downward revision from its previous forecast of $1,900.

“After that, the fundamentals of the precious metal will turn progressively more negative, as the market starts to anticipate a withdrawal of monetary easing measures in line with improving economic growth,” BNP Paribas said.

“We expect gold to average $1,780 in 2014, the first annual decline in 14 years. The extent of the decline will, however, be limited as gold will continue to attract investor flows thanks to its diversification and safe haven properties,” it added.

Goldman Sachs yesterday cut its forecasts for gold in 2013 by 0.8 percent to $1,825, its six-month forecast by seven percent to $1,805 and its 12-month forecast by 7.2 percent to $1,800.

In data, US employers announced plans to lay off 57,081 workers in November, up 20 percent from the previous month when announced redundancies totalled 47,724, according to consultant Challenger, Gray & Christmas.

Additionally, the November ADP non-farm employment change yesterday came in 11,000 below expectations for a reading of 118,000. These two reports have triggered some nervousness and caution in the markets ahead of tomorrow's all-important US non-farm payrolls report.

Elsewhere, Spain struggled yesterday during its bond auction, selling a disappointing 4.3 billion euros of debt - less than its target of 4.5 billion euros - at yields of around 5.3 percent. This poor showing could nudge the country's government one step closer to officially requesting a bailout.

The European Central Bank held interest rates at a record low of 0.75 percent today but the real market mover could be ECB president Mario Draghi's press conference, where he is expected to present a downward revision to the bank's previous GDP forecast.

In wider markets, the euro was about a third of a cent softer at 1.3039 against the dollar, while Germany's DAX and France's CAC-40 were 0.96 percent and 0.23 percent respectively.

As for the more industrial commodities, light sweet crude (WTI) oil futures for January delivery on Nymex were down 38 cents at $87.50 per barrel and the most actively traded Comex copper contract was at $3.6715 per pound, down 1.5 cents.

As for the other precious metals, Comex silver for March delivery was last 19.2 cents lower at $32.765 per ounce. Trade has ranged from $32.68 to $33.025.

“In gold’s slipstream, silver has also fallen noticeably over recent days and traded for a time yesterday at a two-and-a-half-week low of around $32.5,” Commerzbank AG said in a note.

“Since the primary market this year is expected by Thomson Reuters GFMS to exhibit a supply surplus of 300 million ounces, any recovery in the price of silver in the near future will depend to a considerable extent on whether investment demand is able to plug this gap,” it added.

Platinum futures for January delivery on Nymex were up 80 cents at $1,585.00 per ounce, while the March palladium contract was at $686.70, down 75 cents.

(Editing by Mark Shaw)
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