january 1, 2013 will be a historic day for the mankind, either we make it or break it!
At stake is the future of the world which is trying hard to stand on its feet after the Great Recession commenced in 2008. There is positive data from US and China; emerging economies, though experiencing slow down are keen to join the growth cycle and even as it is oscillating between booms and busts, commodity-equity markets are also upbeat.
All this can be wiped out if Republicans and Democrats do not show the political maturity they claim to possess.
There are two events anticipated for the D-day.
--New round of Quantitative Easing measures or QE4
--The resolving of fiscal cliff issue
This can have four scenarios:
Scenario 1: QE4 occurs, fiscal cliff issue gets resolved
Scenario 2: No QE4, fiscal cliff issue gets resolved
Scenario 3: QE4 occurs, no solution to fiscal cliff issue
Scenario 4: No QE4, no solution to fiscal cliff issue
With the Operation Twist drawing to a close in December, the US Federal Reserve may start off with a new round of Quantitative Easing measure to the tune of $85 billion next year, analysts say.
"The Fed would not have emphasized the number ‘$85 billion' in securities purchases in its statement if it wasn't prepared to continue at that pace well beyond the end of the year," said Roberto Perli, a senior managing director at investment research firm ISI to Reuters.
Now, given the consequences faced by US and the world at large, it is everybody's hope that the scenarios 3 and 4 do not occur. That the Republicans, who are now at a disadvantage may budge to proposals from Democrats. The latter may offer certain cuts in spending as a compromise. But creeping mistrust can often mar the agility of communication lines bringing down the whole edifice.
Now, if the third scenario could be slightly bullish for gold, the fourth could be chaotic; its consequences would be unknown by any standards. The scenario injects a heavy dose of uncertainty that can create market panic and sudden crash in markets. Its impacts are unpredictable.
It has also been said that US Federal Reserve lacks the firepower to boost the economy, if the fiscal cliff issue is not resolved and the not-so-inevitable jumping off the cliff happens. That can also add to the uncertainty and panic with a multiplier effect; hence the third scenario may not be that helpful for bullion.
Scenario 1 and 2 are bullish for bullion as uncertainty is removed from the equation; the first scenario proving to be better than the second over the long term.
