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Gold Rises After President is Reelected

Release Date: 
Saturday, November 10, 2012

American Advisor host Joe Battaglia provides a wrap-up of the week's precious metals news along with important commentary every week on the American Advisor Week in Review audio program. Click here to listen.

The price of gold moved higher this week following the Presidential election. Gold was $53.25 higher for the week, settling at $1738.25 per ounce at 2:15 PM Pacific Time at the New York Spot Market close, while silver was $0.24 higher, closing at $32.16 per ounce.



While gold was boosted by the election, the Dow Jones Industrial Average lost more than 300 points by 9:30 a.m. Pacific Time on post-election concerns about the economy, including the fiscal cliff.  The Dow declined further on Thursday with only modest gains on Friday.

Gold traders are the most bullish in 11 weeks and investors accumulated record bullion holdings on speculation of continued monetary stimulus following the President’s reelection. Twenty-five of 33 analysts surveyed by Bloomberg expect prices to rise next week.

There are three near-term catalysts which should be supportive for gold, said Jeffrey Wright, managing director at Global Hunter Securities:   a U.S. debt ceiling limit by mid-December, a plan to deal with the fiscal cliff before January and the Federal Reserve meeting in December, which has the “potential to again support or extend quantitative-easing measures.”

"In spite of dollar strength, the market appears to continue to take comfort from Obama's re-election and the implied support this gives to continued monetary accommodation from the Fed," Standard Bank said in a note. 

Nic Brown, head of commodities research at Natixis, said the Obama victory signaled a continuing environment of relaxed monetary policy, which was likely to support gold prices.  "An Obama victory enhances the likely longevity of ongoing quantitative easing," he said.

Ahead of the election, Mitsubishi precious metals strategist Matthew Turner said, “the general expectation is of an Obama victory, which is more of the same. That's bullish for gold," he noted, referring to expectations for continued easy monetary policy and low interest rates and potentially higher inflation in the future.

“Obama is a supporter of Bernanke and his re-election means that the ultra-loose monetary and fiscal policies by the Fed will continue,” said Daniel Briesmann, commodities analyst at Commerzbank.  “More and more liquidity will be put into the system and therefore there’ll be inflation fears and concern about currency devaluation.”

“Now, with the certainty of the election results and four years of economic and monetary policy similar to the past four, higher gold prices seem both inevitable and imminent,” said Brien Lundin, editor of Gold Newsletter.

Bayram Dincer of LGT Capital Management said gold may reach around $1,800 per ounce by the end of 2012 and $1,900 per ounce by the end of the first half of 2013, supported by a continuing relaxed U.S. monetary policy and possible further quantitative easing.

Gold may reach $1,775 per ounce this month, said Edward Meir, analyst at INTL FCStone.  “With President Obama re-elected, the thinking now is that the Fed’s easy-money policies will likely go on.”

Gold “is displaying relative strength and living up to its reputation as a store of value and a safe haven,” Commerzbank analysts wrote.  "The outcome of the U.S. election increases the probability that ultra-expansionary monetary and fiscal policy will continue," they noted.  According to Li Ning, an analyst at Shanghai CIFCO Futures, “easing monetary policy is still a global trend.”

David McAlvany, CEO of McAlvany Financial Group, said that the long-term picture for gold is positive, regardless of who won the election.  He said that the risks of the fiscal cliff to the economic recovery is one concern that has not been fully appreciated by the market.  “We’re assuming that our legislators in the U.S. are going to be rational actors, work across the aisle and come up with something, and I would not necessarily bet that way,” he said. “I’m not sure that they have the competence to work together, even after the election results.”

"The outcome of a divided Congress, and in turn much back and forth disagreement surrounding the fiscal cliff and the debt ceiling, would be gold supportive," UBS agreed in a note.  “With the fiscal cliff approaching fast, an entire new group of investors will be pouring into the precious metals in anticipation of the grim fact that the U.S. is going to try and print itself out of debt,” said David Morgan, publisher of The Morgan Report, a newsletter on precious-metals investing.

James Steel, precious metals strategist at HSBC, predicted that gold could rally to a high of $1,900 by the end of the year on expected political wrangling over the fiscal cliff.  “If divided government means diffused power and therefore greater uncertainty, that would be a recipe for higher gold prices,” he said. “If one looks at the debt extension fiasco last summer – that is what propelled gold to an all-time high. Any replay of that has the potential to push gold up significantly.”

David Govett, head of precious metals at Marex Spectron, said the resolution of the fiscal cliff is even more important for the gold market than the outcome of the election. "I personally believe this will get sorted, but not after a lot of haggling and negotiating and this will create a lot of uncertainty and volatility in the markets.”  Govett added, "we will see a continuation of the loose monetary policies pursued by the Fed and Chairman Bernanke, for the foreseeable future. Low interest rates and more quantitative easing all add up to favorable metal prices.”

Julian Jessop at Capital Economics expects a new catalyst for a stronger rebound in gold.  “This is likely to come soon in the form of a renewed escalation of the crisis in the euro zone and a revival of safe-haven demand,” he said.

Marc Ground, an analyst with Standard Bank, said in a note that gold prices were likely to rebound, as "it is highly unlikely that stronger-than-expected data will be met by tighter monetary policy anytime soon."

The European Central Bank (ECB) held interest rates at historically low levels of 0.75% and made no changes to monetary policy on Thursday.  The Bank of England also left monetary policy unchanged, maintaining the key lending rate at a record low 0.5%.  Jeffrey Wright, managing director at Global Hunter Securities, said “ECB policies, much like our own, eventually lead to inflation, which support gold.”   

Greece faced key austerity votes to secure bailout payments.  "The Greeks managed to narrowly pass their initial austerity vote overnight, but the main budget vote is this weekend and that needs to be passed for the EU bailout to happen," Marex Spectron said in a note on Thursday.  "So the euro woes remain for the time being, which will once again create uncertainty in the FX markets, with the effects affecting precious metals.” 

According to David Meger, the director of metal trading at Vision Financial Markets, “we may see more announcements to boost growth as global slowdown problems remain, especially in Europe,” given the higher likelihood of U.S. stimulus measures under President Obama.

China’s imports of gold from Hong Kong during September climbed 30 percent from August and were 23 percent more than a year earlier.  Importers in India have been buying gold in the week preceding key festivals as prices hovered near their lowest level in more than 10 weeks.  

 

 

(Sources: “Gold Traders More Bullish After Obama’s Re-Election: Commodities,” Bloomberg, November 9, 2012; “What Obama’s re-election means for gold,” Marketwatch, November 9, 2012; Gold Poised to Decline as Stronger Dollar Curbs Demand,” Bloomberg, November 9, 2012; “PRECIOUS-Gold hits 3-week high on U.S. fiscal fears,” Reuters, November 9, 2012; “Gold climbs with ECB, U.S. fiscal cliff in focus,” Marketwatch, November 8, 2012; “PRECIOUS-Gold holds near $1,715/oz, focus on euro zone,” Reuters, November 7, 2012; “US elections boost for yellow metal,” Financial Times, November 7, 2012; “Gold Set for Longest Winning Run in 2 Months on Obama Win,” Bloomberg, November 7, 2012; “PRECIOUS METALS: Gold Rises in Asia as Obama Wins Second Term,” Wall Street Journal, November 7, 2012; “PRECIOUS METALS: Gold Erases Election Boost as Dollar Gains,” Wall Street Journal, November 7, 2012; “Post-Election: Live Blogging the Market Reaction,” Wall Street Journal, November 7, 2012; “PRECIOUS-Gold at 2-wk high on Obama win; focus on ‘fiscal cliff’,” Reuters, November 7, 2012; “PRECIOUS METALS: Gold Gains on View Price Drop Spurred Buying,” Wall Street Journal, November 6, 2012; “PRECIOUS-Gold hovers near 9-week low; eyes U.S. vote,” Reuters, November 6, 2012; “Both Presidential Candidates are Good for Gold,” CNBC, November 5, 2012; “PRECIOUS-Gold recovers from 9-week low ahead of U.S. election,” Reuters, November 5, 2012; “PRECIOUS-Gold recovers from 9-week low ahead of U.S. election,” Reuters, November 5, 2012; “PRECIOUS-Gold firms but gains limited by strong dollar,” Reuters, November 5, 2012; “Dollar strength keeps gold gains in check,” Marketwatch, November 5, 2012; “PRECIOUS METALS: Comex Gold Edges Higher After Two-Month Low,” Wall Street Journal, November 5, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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