“The Fiscal Cliff – Hanging by three threads?”
The term “Fiscal Cliff” describes the impending decision the US Government will be faced with at the end of the year when the Budget Control Act 2011 comes into force.
Whereby the US Government will be faced with three significant options namely;
To allow the scheduled policy to take place early 2013, featuring numerous tax increases and spending cuts almost certainly pushing the US back into recession.
Secondly an alternative could be to rescind some of the proposed policies, however this will only add to the current deficit and may result in a situation similar to the current Euro zone crisis.
Lastly, a combination of both policies could be adopted, this would address the panic about budget issues and reduce the fear of adding more debt to the already monumental deficit.
Unfortunately, the divided nature of the political classes diminish the chance of a compromise heightening the worrying prospect of a loss of two million jobs.
Clearly, there is a great amount of fragility surrounding this area, although the Budget Cut Act would slice the deficit by $560 billion. The resulting slash in GDP will slide the US into further depression and uncertainty. This insecurity will cause great tremors not only throughout the US but also across the pacific to Europe and the UK.
On the other hand some view this as positive news for investors. The lack of assurance in relation to the outcome of the Budget Cut Act could mean gold prices soaring.
Many investors are concentrating on gold as their commodity of choice to diversify risk and generate positive returns in times of uncertainty. Especially if further quantative easing takes place devaluing the dollar even further.
Investors savour gold as a quasi – currency and inflation hedge, which has been enhanced ahead of the fiscal cliff. This will be heightened if the US congress cannot decide on the deficit reduction package by January when the Budget Cut Act comes into effect.
Pau Morilla-Giner, CIO at London & Capital anticipates this will amount to another “leg up for gold. In six months time, we might see gold flirting with $1,900 or $1,950”. Making it the perfect time to buy gold bullion.
This is evident if you consider the commodities sector having its biggest quarterly gain in nearly two years. Further suggestion of the bullish markets continuance denotes from Obama succeeding in power defeating republican Romney.
Obama faces chronic high unemployment, weak economic growth as well as terse geopolitical matters with China, Russia and Iran, not to mention the up and coming fiscal cliff.
Over the next six weeks, the full wrath of the bickering classes will unfold and no one knows how this will be resolved, or when…
Author: Eytan Krips
2012-11-21 09:22:36
Source: http://blog.kkbullion.com/2012/11/21/the-fiscal-cliff-hanging-by-three-threads/
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