Spot prices for buying gold fell back to $1,720 an ounce Wednesday morning in London, after hitting two-week highs following news of the re-election of Barack Obama as U.S. president.
"Gold is making significant gains on the back of a weak U.S. dollar," said this morning's commodities note from Commerzbank.
Prices for buying silver fell back below $32 an ounce after they touched their highest level in a week.
"Obama's re-election is likely to boost expectations of continued easing by the Fed," says Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo.
"We forecast gold will end the year at $1,780 an ounce and peak late in 2013 at around $1,890 an ounce," adds a report from ANZ.
"We think there could be upside risks to these forecast highs, in the event of additional U.S. policy easing or signs of inflation following the liquidity injections of the past four years."
"Monetary policy will remain loose under Obama," reckons Michiyoshi Kato, senior vice president of foreign-currency sales at Mizuho Corporate Bank in Tokyo.
"The dollar will be sold...[but] dollar selling may not last that long as the U.S. faces the fiscal cliff."
The so-called fiscal cliff refers to the combination of tax cut expiries and spending cuts currently due at the start of 2013 unless Congress passes legislation to cancel or postpone them.
European stock markets meantime ticked lower this morning, while on the currency markets the U.S. dollar recovered from earlier losses as the Euro dropped to a two-month low against the dollar.
Commodities also fell, while U.S., U.K. and German government bond prices gained.
Greek politicians are due to vote tonight on a fresh round of austerity measures, in the hope that agreeing to further reforms will secure payment of the next tranche of bailout money. Wednesday saw the second day of a two-day strike called in protest at the proposals, which include wage cuts and tax hikes worth an estimated €13.5 billion.
"If lawmakers vote in favor of the measures," says Nikos Kioutsoukis, secretary general of private sector union GSEE, "they will have committed the biggest ever political and social crime against the country and the people."
Elsewhere in Europe, the financial management of the European Union "Is not yet up to standard," according to Vitor Caldeira, president of the European Court of Auditors, which published its report on last year's EU budget Tuesday.
British Prime Minister David Cameron meantime described as "ludicrous" this morning plans to increase the EU budget by 5%.
"They are proposing a completely ludicrous €100 billion increase in the European budget," Cameron told reporters ahead of talks with German chancellor Angela Merkel.
"I'll be arguing for a very tough outcome."
Cameron's government was defeated in a parliamentary vote last week, as 53 members of his party joined opposition Labour to pass an amendment calling for a real-terms EU budget cut.
Britain and Germany could "torpedo" the EU budget summit on November 22, German magazine Der Spiegel reports, in what it describes as an "unholy alliance," with Germany also looking to see a reduction in the proposed EU budget increase.
China is set to overtake India as the world's largest gold buying nation, according to Song Xin, vice president of the country's largest gold producer China National Gold.
"China's large increase in gold consumption will have a positive impact to the global gold market," said Song.
"China's production is expected to reach 380 tonnes this year, and we will continue to be the world number one gold producer."
Reports from Asia this morning suggested gold buyers in India took advantage of last week's wholesale market price drop, ahead of the Dhanteras and Diwali festivals, traditional occasions for buying gold, which will be celebrated on Sunday and Tuesday respectively.
"I think India has bought enough," one Singapore dealer told newswire Reuters, "unless there's a sudden last-minute rush."
"If this Diwali we manage to sell even a small percent of what we sold last Diwali, we shall be very happy," says Vimal Kumar Goyal, president of the Delhi Bullion and Jewellers Welfare Association.
"Sales have been abysmally low this year…there is an almost 50% dip in sales as compared to previous years and the sales never picked up after the strike was called off," adds Goyal, referring to the three-week strike by Indian gold dealers that started in March after the government increased duty on gold imports and extended a sales tax to unbranded jewelry.
Indian gold demand could fall to 550 tonnes next year—compared to more than 900 tonnes over the whole of 2011—new Bombay Bullion Association president Mohit Kamboj said Tuesday, adding that any import duty hikes could push demand down further.
Ben Traynor
BullionVault
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2012
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