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Gold Seen Rallying on Politics, Budget

Gold traders expect prices to rebound from the recent spate of negative performance in the gold market on mounting concerns that U.S. lawmakers are doing too little to control the budget deficit and investors will demand protection for their wealth.

In early trade on Friday, the gold market reacted to minutes released from the Federal Reserve’s FOMC meeting that indicated some committee members favor a slowing or cessation of fiscal stimulus by the end of 2013. In morning trade, the price of gold fell by 1.2 percent on Friday, sparking some commentary that the price change was too strong a reaction to the news.

On Monday, the price of gold lost a little more ground with U.S. gold futures for February delivery down $5.10, or .31 percent, to $1,643.60 per troy ounce. The spot price of gold, similarly, down $10.48 or 0.63 percent per troy ounce.

Kurt Pfafflin, a senior broker with Daniels Trading, said he believes this is an overreaction, speaking of the day’s losses in the gold market. He went on to say he did not expect the Fed’s easing efforts to end any time soon and that low interest rates may continue to send investors looking for a higher yield into gold.

Earlier in the week, gold posted a 7 percent gain on the year for 2012, extending its decade long bull run by another year, as U.S. lawmakers passed legislation preventing tax increase and delaying spending by two months.

Alternative views of markets and debt have largely subsided in 2012 from the types of language we saw closer to the economic crises of 2007-2008. Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets, said the euphoria over the fiscal cliff avoidance could be short-lived, as all problems are not solved yet. He added there’s still a huge amount of debt and gold is nobody’s liability; it’s the ultimate currency.

A Bloomberg survey of 49 traders and analysts last month saw gold reaching $2,000 this year as investors hedge against inflation and weaker currencies. Investors bought 60 percent more through gold ETPs in 2012 compared with 2011, now holding 11.7 metric tons below the record 2,632.5 tons from Dec. 20. According to Bloomberg and Barclays Plc, the holdings are equal to almost a year of mine production. Additionally, data compiled by the IMF show nations from Brazil to Iraq to Russia are buying gold to build up official reserves.

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