US debt limit delay and stimulus measures support gold prices, says Sharps Pixley

London precious metals broker Sharps Pixley says that the US debt ceiling debacle is lending support to gold.

The US Treasury secretary Tim Geithner warned on Monday that the extraordinary measures used to prevent the $16.4trn debt ceiling from being breached will exhaust at the latest in early March. Despite the passing of the recent tax deal, the government still has to agree on a plan to prevent the automatic spending cuts from happening at the end of February. President Obama said that he would not negotiate over the debt limit with conditions on spending cuts.

Stimulus Measures Continue

The Federal Reserve governor Ben Bernanke gave no signal yesterday that he would ease off the pedal on quantitative easing. He was still not satisfied with the economic improvement so far in the US economy, especially in the labour market. In the meantime, the January New York Fed general economic index fell to minus 7.8 from minus 7.3 last month.

On 11 January, the new Japanese Prime Minister announced his 10.3trn yen fiscal package to revive economic growth. He also called for bold moves from the Bank of Japan to engage in “unlimited quantitative easing”, and to raise the inflation goal to 2 percent. The weaker growth, the US debt ceiling discussions, and the hopes for more central bank stimulus have been supporting gold prices.

What to Watch Next Week

The highlights of next week will include the E17 meeting in Brussels on 21 January, the Bank of Japan announcement of the target rate and monetary policy and the European Finance Ministers meeting in Brussels on 22 January, the January flash manufacturing PMI index for China, the Euro-17 and the US on 24 January, and the December US new home sales on 25 January.

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