The House signed on to a partial resolution of the looming fiscal cliff late last night, which raised income taxes on families making more than $450,000 a year and canceled the 2% payroll tax cut among other things. The news sent stock markets worldwide higher, as precious metals and oil gained and the U.S. dollar dropped. Crude oil hit a two and a half month high in overnight trading. The precious metals are following equities in a "risk-on" behavior as the possibility of the U.S. economy dropping into a recession decreases.
Last night's budget deal "kicked the can down the road" for another two months, as Congress voted to delay the automatic across the board spending cuts known as the sequester. This sets up a replay this spring of the 2011 debt ceiling impasse which led to the creation of the fiscal cliff in the first place. Edward Meir, commodities consultant at INTL FCStone said “Whatever happens in Washington, we suspect gold will likely do better over the next few weeks as the colossal failure of political will to get America’s fiscal house in order should provide fodder for the gold bugs to bid prices higher…"
Despite the price drop in December, gold recorded a record 12th straight year of annual gains, something no other commodity has ever done.