How is the Looming Fiscal Cliff Impacting Gold Prices?

Gold hit a two-week high after President Barack Obama’s re-election on Wednesday.

After much speculation and worry about the so-called “fiscal cliff,” gold increased 2 percent to around $1,729 an ounce. While the dollar has been strengthening, the value of gold has been depreciating.

Gold reached an 11-month high in October after the Federal Reserve announced its round of stimulus measures. The price of gold has been down since, due to uncertainty over the presidential election and what it might mean for the economy.

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The threat of a fiscal cliff looms, and could potentially lead the country or even the global economy into a recession. Obama will soon have to confront the nearly $500 billion in automatic tax hikes and spending cuts set to take effect in January.

Gold prices are expected to rise by the end of this year to around $1,800 an ounce as the result of low interest rates and quantitative easing, a method by which government increases money supply.

This has caused some slowdown of gold imports to India, which is the world’s largest consumer of the precious metal. It is usually at this time of the year that consumption peaks as the country celebrates the festival of lights, Diwali.

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