Gold Jumps to a Two-Week High on Obama Re-Election

on Nov 7, 2012

On November 7, Reuters reported that gold extended its gains to reach a two-week high following the re-election of Barak Obama, which is seen as beneficial to the prospect of gains for the precious metal, given the President’s support for the Federal Reserve’s quantitative easing measures to stimulate the US economy. With the resolution of the election race, analysts are already speculating about the looming US fiscal cliff, with some seeing it as weighing on gold and others predicting a further rise in the precious metal’s price.

**Obama’s Victory Seen as Beneficial for Gold**
Gold hit its highest level in two weeks and remained in positive territory following the news of the re-election of the US President Barak Obama. Gold reversed early losses to hit around $1,729 an ounce, its highest position since October 23.
President Obama’s victory, which means that quantitative easing is likely to continue, is seen as beneficial for gold, given the precious metal’s traditional appeal as a hedge against inflation, an associated consequence of QE. “Nothing will change with regard to the ultra-loose monetary policy of the Fed,” Commerzbank (ETR:CBK, FRA:CBK, PINK:CRZBY) analyst Daniel Briesemann noted, as quoted by Reuters. The Fed’s third round of quantitative easing, announced in September, sent gold to an 11-month high above $1,795 an ounce in October.

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!m[Gold price has reached a two-week high on the back of Obama’s re-election](/uploads/story/740/thumbs/pic1_inline.png)“We will see a continuation of the loose monetary policies pursued by the Fed and Chairman Bernanke, for the foreseeable future,” David Govett, head of precious metals at Marex Spectron, as quoted by Reuters. “Low interest rates and more quantitative easing all add up to favourable metal prices.”

The Financial Times in turn quotes Edel Tully, precious metals strategist at UBS (NYSE:UBS), as noting that “gold couldn’t have asked for a better outcome.”
The Fiscal Cliff Factor
And while analysts seem to agree on the effect QE will have on gold, the impact of the looming US “fiscal cliff” is harder to forecast. Reuters quotes Danske Bank (CPH:DANSKE, PINK:DNSKY) analyst Christin Tuxen as saying that the possible rise in the dollar as a safe haven on account of the fiscal challenges in other parts of the world, notably the Eurozone, could limit the upside in gold prices. By contrast, Ole Hansen, head of commodity strategy at Saxo Bank sees the upcoming fiscal cliff as positive for gold. “The political gridlock in Washington has not gone away following the election, and this uncertainty has the potential of supporting the [precious] metals,” notes Mr Hansen, as quoted by the FT.


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