Friday, November 23, 2012
Myra P. Saefong
Before the US election results, many investors bet on a win by Obama, bidding up the gold price on assumptions that the Fed will continue its policy of monetary easing during the president’s second term. 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 “fiscal cliff,” a combination of tax hikes and spending cuts that will come into effect on January 1 unless politicians reach a budget deal.
In Europe, the question is whether the Eurozone debt crisis may push the fragile global economy back into recession. Panic in Europe would mean an increase in gold as investors seek the safety of a stable store of value.
Most of the factors in the gold market point to higher prices in the months to come. To date, gold futures have climbed around 9% for the year, but fallen nearly 3% for the quarter.
After the election, the fiscal cliff is the biggest near-term issue that Washington needs to resolve. How the government deals with it can have both bullish and bearish effects on gold prices.
Investors are waiting to see whether President Obama can work with a Congress that remains divided. Going over the cliff risks a US recession and a flight to safety which will likely drive gold higher.
What should a precious metals investor do following Obama’s win?
“Patience and fortitude” might be a good mantra to follow, according to Jeb Handwerger, a natural resource analyst. “The world is so full of possibilities for scaring the hell out of investors and triggering a rise in gold prices that it is likely that such an event will occur within the next nine months,” said Malcolm Gissen, co-manager of the Encompass Fund.
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