The last World Council Gold report published on November 15, indicated that the global demand for gold weakened in the third quarter. As a result, the price of the yellow metal fell 1% after Thursday's announcement.
Selling sentiment in gold keyed off "a weak demand summary from the World Gold Council partly influenced by very tough year-over-year comparisons to the big run-up in gold demand associated with the U.S. budget fiasco in August 2011," said Steve Roy, Chief Technical Analyst for Equity Management Academy.
In tonnage terms, global demand fell 11% from the year-ago third quarter as China's appetite for gold investment and jewelry declined, according to the Gold Demand Trends Report released Thursday.
Global demand in the third quarter was 1,084.6 metric tons, down from the record figure of 1,223.5 metric tons seen a year earlier, the report said. In value terms, year-on-year demand dropped 14% to $57.6 billion, with an average gold price of $1,652 an ounce, down 3% from the third quarter a year ago.
Meanwhile, the quarter's global investment in exchange-traded funds jumped 56% from the prior year.
"It is clear from five-year rising demand trends that gold's fundamental property as a vehicle for capital preservation continues to endure, as evidenced by this quarter's increase in global ETF investment … and continued purchasing by central banks, the ultimate long-term investors," said Marcus Grubb, managing director, investment at the World Gold Council, in a statement.
The eurozone has slipped into recession for a second time in four years, as the sharp fall in activity in debt-ridden southern Europe economies weighed on output across the region.
Europe's long-running debt crisis dragged the 17-nation eurozone back into recession in the third quarter, data showed Thursday, offering a negative counterpoint to growing optimism among U.S. and global investors over prospects for the global economy.
Third-quarter eurozone gross domestic product shrank 0.1% compared to the second quarter, the European Union statistics agency Eurostat said. That's equal to an annualized contraction of around 0.4%.
With the eurozone continuing to deteriorate at an accelerated pace according to the latest data points and the U.S. Fiscal Cliff deadline fast approaching, the inevitable seems to be closer than you think.
Letting Tax Cuts Expire Will Not Balance the Budget
Some call for letting all 2001 and 2003 tax cuts expire, including subjecting the middle class to the alternative minimum tax, in order to balance the budget. Under this scenario, unaffordable spending would still rise, and economic growth and job creation would suffer.
PERCENTAGE OF GDP
Balancing the Budget Without Cutting Spending Would Cause Taxes to Skyrocket
America is running massive deficits, and a balanced budget requirement is often considered a way to rein in red ink. Without serious entitlement and spending reforms, the level of taxes required to balance the budget would reach economically stagnating levels.
PERCENTAGE OF GDP
Source: Heritage Foundation calculations based on Congressional Budget Office data (Alternative Fiscal Scenario)
Hiking Taxes to Balance the Budget Would Require Doubling Tax Rates
The costs of Medicare, Medicaid, and Social Security are rising substantially. Paying for this spending solely through federal income tax increases would require more than a twofold increase of current tax rates, even for the lowest tax bracket.
MARGINAL INCOME TAX RATES
Source: Congressional Budget Office.
Taxing the Wealthy to Balance the Budget Will Not Work
Some argue for taxing the wealthy to reduce federal deficits. However, hiking taxes on taxpayers in the two highest brackets would increase their tax rates to mathematically impossible levels. To close the 2035 deficit, the top two tax rates would increase to 159 percent and 166 percent, and in 2050, they would reach 236 percent and 246 percent.
Sources: Internal Revenue Service and Congressional Budget Office (Alternative Fiscal Scenario).
Government Policy Reform Needed to Keep Spending Low and End Deficits Without Raising Taxes.
Bold, transformational reforms are needed to solve America's spending and debt crises. The Heritage plan, Saving the American Dream, solves these crises through spending, entitlement, and tax reforms. It reduces the size of government, encourages personal fiscal responsibility, and fosters economic growth. It balances the federal budget by 2021 and does not raise taxes.
REVENUE AND SPENDING AS A PERCENTAGE OF GDP
Sources: Heritage Foundation calculations by the Center for Data Analysis based current projections, data provided by the Peter G. Peterson Foundation, and CDA policy models.
Let's take a look at the weekly gold and silver charts and see what the weekly technical picture is forecasting for the price action over the intermediate future.
The December (Comex) electronic gold contract closed at 1713.30. The 52-week Range is: 1535 - 1815. The market closing above the daily 18 and 36 day MAs on a weekly basis is confirmation the intermediate to long-term trend momentum is bullish. With the market closing below the VC Weekly Price Momentum Indicator of 1718.6, confirms the price momentum is bearish.
Look to take some profits if long as we reach the 1733 and 1752 levels early next week. If stops are taken out here, we could see a rally up to the 1755 and 1777 weekly resistance levels.
Buy corrections at the 1699 to 1685 levels to cover shorts and go long on a weekly reversal stop. If long use the 1685 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
The December (Comex) electronic silver contract closed at 32.35. The 52-week Range is: 26.215 - 37.65. The market closing above the daily 18 and 36 day MAs on a weekly basis is confirmation the short to intermediate trend momentum is bullish. The market closing above the VC Weekly Price Momentum Indicator of 32.43 confirms the price momentum is bearish.
Look to take some profits if long as we reach the 32.85 and 33.85 levels early next week. If stops are taken out here, we could see a rally up to the 33.85 and 35 weekly resistance levels.
Buy corrections at the 31.93 to 31.51 levels to cover shorts and go long on a weekly reversal stop. If long use the 31.51 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.