What Obama’s re-election means for gold

President Barack Obama's re-election has given gold investors even more to think about. With the election over, many investors are focusing their attention on the fiscal-cliff, a combination of tax hikes and spending cuts that would come into effect on January 1, 2013 unless politicians reach a budget deal.

By Myra P. Saefong
Nov. 9, 2012, 8:31 a.m. EST
Market Watch

SAN FRANCISCO (MarketWatch) — President Barack Obama’s re-election has given gold investors even more to think about.

Gold futures GCZ2 +0.30% fell $1 on Wednesday in the wake of the U.S. presidential election.

On Thursday, they bounced back, climbing $12 to settle at $1,726 an ounce but that’s not quite the Obama win-induced rally the market was expecting. Prices are still stuck in the $120 or so trading range they’ve been in since late August.

“The dust is still settling after the U.S. election,” said Ben Traynor, chief economist at BullionVault, a physical gold and silver market for private investors online. “Despite all the hoopla surrounding the election, nothing of substance has changed.”

And “the focus has started to shift towards the fiscal cliff,” he said.

Before the election results, many investors bet on a win by Obama, bidding up the gold price by nearly $32 an ounce Tuesday, on assumptions that the Federal Reserve will continue its policy of monetary easing during the president’s second term. Compared to that rally, enthusiasm has quieted down, but that probably won’t last for long.

With the election over, investors can focus on other issues, such as the so-called fiscal cliff, a combination of tax hikes and spending cuts that will come into effect on Jan. 1 unless politicians reach a budget deal.

“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.

“The fiscal-cliff debate will be a factor [for gold], but so too will events elsewhere,” such as in Europe, according to Traynor.

“For all its economic significance, the fiscal cliff is at heart a political issue, one that revolves around whether politicians [...] can reach a temporary agreement,” he said. “Europe’s problems go much deeper than that.”

In Europe, the big question is whether the euro-zone debt crisis may push the fragile global economy back into recession, according to Paul Herber, portfolio manager of the Forward Commodity Long/Short Strategy Fund FCOMX -0.27% . “Panic in Europe would also see an increase in gold prices as investors seek the safety of a stable store of value,” he said.

So, at least for now, most of the factors in the gold market point to higher prices in the months to come.

“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.

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