China begins 2013 in black - and in gold

2012-DEC-31

The future of the US economy remains delicately in the balance on the last day of 2012. In just twenty-four short hours, unless a deal is negotiated and voted on by the US Congress - along with the support of the President Obama - the United States is set to go off the so-called “fiscal cliff” and possibly slump back into a recession. The term “fiscal cliff” has become the code-word for the automatic government programs that kick in on January 1st, which consists of massive cuts in government spending and large increases in taxes - approximately $600 billion worth.

And as the fiscal cliff has been approaching, US equity markets have been feeling the pain. Just a week ago, the Dow Jones Industrial Average, an index for 30 of the biggest companies in the world, touched 13,310 points. But since Congress has been unable to pass a deal, the DJIA is down to only 12,938. The same goes for the other US exchanges.

Interestingly, gold and silver have remained relatively sideways - even gaining at moments - over this last week of 2012. For instance, gold spot price started at around $1647 an ounce and ended at $1657. Similar with silver - starting at a spot price of $29.80 an ounce and ending at over $30. How gold and silver will react tomorrow on news if, or if not, US lawmakers pass a fiscal cliff resolution remains to be seen. How gold and silver will act in the long-run, however, is a question that many economists are commenting on. See here Alasdair Macleod's forecast and here Von Greyerz's forecast on KWN.

Overshadowed by the headlines of the fiscal cliff issue in the United States, but no less insignificant in world affairs, China is closing the year out in a very prosperous manner - and predicted to begin 2013 even stronger. For example, all Chinese indexes saw positive growth over this past week and predictions are this trend will only continue into the new year. In addition, according to a recent poll by the Wall Street Journal, economists predicted China should see above 7% GDP growth next year. (Compare this to the US and its meager 1.7% average GDP growth over 2012.) Moreover, China has also made significant steps in making its currency - the yuan (i.e., the renminbi) - more accessible and useable in international business and trade. For instance, China now has the ability to purchase oil in yuan; China’s economy is set to surpass the US by 2016; last, China recently opened a new gold exchange index - one to rival the US Comex - in Shanghai. In regard to gold, according to the World Gold Council, economic statistics for 4th quarter 2012 will tell us if China has become the biggest gold-consuming nation in the world, displacing India and its long-held title as such.

That said, 2013 looks like it will be an interesting year. From all of us at GoldMoney.com, we wish you and yours the very best for 2013.