Quote Nearby gold futures have failed from major resistance at the $1,800 per ounce level and are turning down. Because gold and stocks have been reacting to some of the same bullish fundamental drivers of late, including risk-on sentiment and appetite driven in large part by the massive liquidity juice from global central bank quantitative easing, gold is offering an important clue for stock market action ahead. But, for gold traders the perhaps more important correlation to monitor is the stock/gold divergence during the July-September 2011 period surrounding the tussle on the U.S. debt ceiling and the subsequent credit downgrade for the U.S. Why? Because we could be heading for a repeat performance in a few short weeks. And, that could mean once again a divergence between gold and stock prices, just like we saw back in late summer/early fall 2011. Nomura economists expect the U.S. to hit its debt ceiling limit around year-end. "The U.S. federal budget deficit was greater than $1 trillion for the fourth consecutive fiscal year in 2012. The U.S. government will likely exhaust its headroom under the current debt limit within a few months and we expect the Treasury to suspend normal issuance of non-marketable debt by the end of the year. Specifically, we expect that the outstanding federal debt to reach its statutory limit around the end of this year," wrote Nomura economists in a recent research note. This comes on top of ratings agency Moody's recent warning that they could downgrade U.S. debt before year-end if no deal is struck to address long-term debt and fiscal issues. What does this all mean for gold? Even if stocks sell-off later this year, if the Washington policy makers fail to quickly and adequately address the U.S. debt ceiling and come to agreement on a long-term debt deal, gold could likely once again decouple from stocks and surge higher. More..Click on http://www.kitco.com/ind/Brecht/20121019.html
