Gold's Price in 'Flux' Until Taper Timeline Gets Clearer

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By Sri Jegarajah

Gold prices will remain listless for the remainder of the year as investors await more visibility on when the U.S. Federal Reserve will start cutting bond purchases, analysts say.

Bullion prices largely defied expectations for a sharp drop following forecast-beating U.S. jobs numbers, which some said may signal an earlier withdrawal of stimulus measures by the Federal Reserve.

The metal traded in a wide range Friday, dropping sharply to five-month lows after strong U.S. jobs data but ending the day higher on short-covering, Reuters reported. Spot gold rose 0.14 percent to $1,229.90 an ounce at 12.20 p.m. Singapore time.

U.S. employers added 203,000 new jobs in November, exceeding expectations, while the jobless rate fell to a five-year low of 7 percent, %VIRTUAL-article-sponsoredlinks%the Labor Department said Friday.

Prices may rise modestly in the near-term as gold bulls keep alive the prospect of a later taper since the data has to signal growth that's strong enough to allow the Fed to cut bond purchases.

"Gold is holding its own for now because the jobs report was not good enough to end the tapering timetable guessing game," said Edmund Moy, chief strategist with gold-backed IRA provider Morgan Gold.

"Look for gold prices to be in flux until the Fed, perhaps at their December meeting, gives clearer signals about when they start tapering," added Moy, a former director of the U.S. Mint.

Positioning

CNBC's latest survey of market sentiment showed 53 percent of respondents (9 out of 17) expect prices to gain this week, 35 percent (6 out of 17) say prices will fall while 12 percent (2 out of 17) say prices will trade at around current levels.

The short-term positive view for gold is reinforced by data from IG Markets showing 76 percent of clients with open positions expect gold prices to rise.

"I don't expect the Fed to taper in December," said Kelly Teoh, market strategist at IG Markets in Singapore. "Underlying weakness persists in the U.S. economy with Q4 looking difficult. Fed members will always convey the message that they would like to taper but it's a different matter when it comes to pulling the trigger."

Despite the metal's apparent resilience in the face of an upbeat jobs number, gold bulls are circumspect.

"There are too many unknowns to determine the long-term direction for the market," said Scott Carter, chief executive officer of Los Angeles-based Lear Capital, who's adopting a "neutral" position on gold for the week ahead.

"We may need to clear the holidays, establish [Janet] Yellen as the new Fed chair and see where that takes us," Carter said. "The picture will be clearer in mid-January. I think the trend line is net bullish for gold given debt, [quantitative easing] and a weak economy."


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Gold's Price in 'Flux' Until Taper Timeline Gets Clearer
Usually, if borrowers have part of their debt written off or forgiven, they have to treat that amount as taxable income. But in the aftermath of the housing market's implosion, homeowners who defaulted on their mortgages and had their bank write off or forgive part or all of their loans weren't required to claim the forgiven amount as income. The Mortgage Forgiveness Debt Relief Act of 2007, which created this provision, has been extended before, but now, with home prices recovering somewhat, the incentive to preserve this provision is starting to fade. That makes it more likely that the mortgage-debt forgiveness provisions might not get renewed for 2014.
Federal tax law has allowed taxpayers to deduct state and local income taxes for years, but for the 57 million people who live in states that don't charge income tax, those provisions didn't provide any relief. That changed in 2004, when lawmakers allowed taxpayers to choose instead to take a similar deduction for sales taxes. The provision, which was originally slated to expire at the end of 2007,  has been repeatedly extended by Congress. Over the years, it has provided $16.4 billion in deductions to affected taxpayers.
Teachers from kindergarten to high school are allowed to deduct up to $250 for money they spend buying supplies for their classrooms. This deduction's available even to those who don't itemize, making it more valuable than most deductions. According to figures from The Tax Institute at H&R Block, more than 3.6 million teachers took advantage of this provision in 2010 to deduct $915 million in expenses. This deduction has been extended regularly ever since its initially scheduled expiration in 2005, so, even though it's on the chopping block again, it's a pretty good bet that lawmakers will let the tax break survive into 2014.
Under current law, employers may allow their employees to have pre-tax money taken from their paychecks and directed to paying for parking expenses or the cost of public transportation. But for years, the maximum amounts for public-transportation expenses were only about half what car-commuters could take for parking. In 2009, lawmakers equalized those amounts. In 2013, that meant that $245 a month worth of commuting-related expenses could be paid for tax-free, whether that meant a transit pass or parking fees. But after a last-minute battle at the beginning of this year to extend the benefit retroactively to 2012, transit-riders are once again facing the expiration of the provision. In June, three lawmakers introduced the Commuter Parity Act to make the provision permanent, but the bipartisan proposal is stuck in limbo in the House Ways and Means Committee.
These provisions allow certain taxpayers to deduct between $2,000 and $4,000 of qualified educational costs. This provision was also retroactively reinstated for 2012 at the beginning of this year. The difference, though, is that other tax breaks also exist for educational expenses, including the Lifetime Learning Credit and the American Opportunity Credit. (You have to pick either the tuition and fees deduction, or one of the two education credits. You're not allowed to double-dip.) Those tax credits makes it less crucial to extend the tuition deduction, although it's still a better deal for many people: The Tax Institute at H&R Block says that 2 million taxpayers used it to write off $4.36 billion in expenses in 2010.
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Congress commonly waits until late in the year to extend expiring tax provisions like these, as well as others not mentioned above, such as the exemption for charitable IRA distributions, deductions for mortgage insurance premiums, and the higher immediate write-off amounts for small-business equipment purchases.

Lawmakers often use what's known as a tax-extenders bill to pass all the extensions in a single package. Earlier this month, WOTC Coalition President Paul Suplizio said that a seemingly unrelated Medicare-payments bill was probably the first step toward a year-end tax extenders bill that would cover expiring tax breaks like these.

And, just as millions of Americans procrastinate until April 15 to file their taxes, we can expect lawmakers to wait until Dec. 31 -- or beyond -- to decide the fate of these tax breaks.
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