Adios Fiscal Cliff; hello March Madness

2013-JAN-02

Happy New Year! 2012 saw yet another year of gains for gold – the twelfth in a row. Silver also recorded gains across all major currencies, in contrast to 2011, when it appreciated against just the Indian rupee across the calendar year. We’ll be publishing a new James Turk article later today analysing the metals’ 2012 performances, so keep an eye out for that.

The last few years have been dominated financially speaking by uncertainty in Europe and the United States. These two economic giants are like men stuck on the ends of a seesaw, balanced over shark-infested waters. Each are taking it in turns to dip in and out of the water: Europe was soaked during 2012, with the dollar and US markets holding up fairly well (US equities returning around 13% for the year and the Dollar Index sticking at 80.00). The euro, eurozone equities and bonds suffered notable losses during the first half of the year – though they staged a recovery from mid-July onwards (the euro actually recording a modest gain against the dollar over the course of the year).

Now with all the talk about the fiscal cliff come and gone following the last-minute deal reached in Washington (a deal, incidentally, that will result in just $1 of spending cuts for every $41 of tax increases), the US government has once again bumped its head against its “debt ceiling”: the federal government reached its statutory borrowing limit of $16.4 trillion (roughly 104% of GDP) on Monday. As the New York Post outlines, there are still various ruses the Treasury can pull in order to buy time, but these measures will only “save” around $200bn – meaning Congress will have to raise the ceiling by late February, or we’ll be faced with possible “March madness” in the financial markets.

March madness: the next great twitter phrase? The seesaw is tipping in Europe’s favour. And if the summer of 2011 is any guide (the last period when the debt ceiling was front and centre of market attention) then gold could be in for a strong start to the year.