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Tuesday’s election outcome
- with President Obama returning to the White House, the Democrats retaining a weak majority in the Senate, but without enough seats to overcome a Republican veto on important legislation, and a strong Republican majority in the House of Representatives - may be the
best of all possible world’s for gold investors.
Just a month ago, on October 5th,
gold reached an 11-month
high just over $1,795 an ounce.
Since then, in the run up
to yesterday’s election, the yellow metal slumped as low
as $1,672 - reflecting the prospects that a Romney victory might bring a reversal in economic policies, a reversal that would be “unfriendly” to gold. Beginning late last week, as the polls
shifted back in favor of Obama gold again rallied, nearly touching $1,730 before settling down on speculative profit taking in paper markets.
Gold prices are likely to
remain volatile, continuing
to exhibit big day-to-day and week-to-week ups and downs
as the market sorts out the long-term consequences of four more years
like the last four years - four more years
of recession-like economic activity or worse, four
more years of fiscal gridlock
with annual trillion-dollar federal deficits, and most importantly for gold-price prospects, four more years of
accommodative Federal Reserve monetary
policies.
With the election
now behind us, the market’s
short-term attention will
re-focus on possible
Federal Reserve policy initiatives that may be
discussed or even initiated at the December
12th FOMC policy-setting meeting. There is already talk
of further quantitative easing, expectations of which could
soon become a strong up-side price driver.
From a longer-term perspective, the Obama
Administration will likely continue
to endorse aggressive monetary stimulus as the only
game in town to counter recessionary
tendencies in the U.S. and global economy. Moreover, when Chairman Bernanke’s term expire in 2014, President Obama
is likely to appoint another
monetary “dove”
to head the Fed.
Similarly, the financial
markets (including the market for
gold) will increasingly react to the
impending “fiscal cliff” mandating a combined $500 billion in tax increases and spending cuts beginning at the start
of the new year - that
is unless Congress and the Administration can agree to a more
tolerable solution to American’s fiscal profligacy - or more likely, Washington will simply “kick the can down the road,” by agreeing to revisit
deficit reduction at some later
date.
However this sorts
itself out, America is following Europe down the road toward
ill-timed fiscal
restraint, restraint that will only
exacerbate recessionary tendencies, and force the Fed
to counter with still more stimulative monetary policies.
These and other
positive price drivers and physical market fundamentals could form a “perfect storm” for gold in the closing
weeks of 2012 - and, quite possibly,
we could see the metal
approach or even surpass its record high by year-end or
early 2013.
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