US election: now for the hangover

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Published : November 08th, 2012
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Category : Opinions and Analysis

 

 

 

 

At long last, it’s all over. Residents of Ohio, New Hampshire, Florida and other swing states can at last watch TV again without being bombarded with political advertisements. Precious metals and commodities in general have reacted positively to Obama’s re-election, while the dollar has sold off.

Gold and silver’s biggest move of the 24 hours actually occurred yesterday afternoon, however, prior to the result: the metal swiftly moving from around $1,690 to $1,715 in a matter of minutes, while silver gained close to a whole dollar per ounce during the same period. Perhaps the “longs” had a premonition that Obama would win (thus cementing weak dollar policies for another four years). A better interpretation is that fundamentals for precious metals are strong enough that it wouldn’t really have mattered who won, so physical buyers leapt at the fleeting chance to buy at under $1,700.

The Dollar Index has actually held up relatively well over the course of Obama’s first term (better than during George W. Bush’s first term from 2001-2005). A key test now awaits dollar bulls though, in the form of the fiscal cliff: shorthand, as the Telegraph informs us, for the $607 billion of tax increases and spending cuts due to take effect from January. The Congressional Budget Office has warned that this will push the economy back into recession in a matter of months – if all the cuts and tax rises are enacted.

This is partly why the Federal Reserve will have to persist with its efforts to devalue the dollar. Another key reason is explored in the video below (hat-tip, JSMineSet.com).




 

 

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