The price of gold rose on the back of president Barack Obama’s victory in the US elections yesterday, with the Democrat’s win supporting further upside in the precious metal.
Comex gold futures, which slumped $40 last Friday to $1,675, rebounded on Tuesday to $1,724.30 in the early afternoon of Asian trading, spurred by the re-election of Obama, according to gold broker Sharps Pixley.
The gold price dropped last week as traders were concerned the third round of quantitative easing could end sooner than expected if the labour market continued to recover strongly.
Sharps Pixley added a Romney presidential win would have likely boosted the dollar and led to a more hawkish monetary policy, stemming a rise in the gold price.
‘Now that the Americans have decided on Obama, the gold price is expected to rise further on expectations of more economic stimulus,’ the broker said.
‘However, market attention will also turn to the uncertainties caused by the US fiscal cliff totalling more than $600 billion beginning 2013 and the outcome of the Greek's vote on the austerity measures on Wednesday.’
Indeed the impending fiscal cliff and potential major blow to risk assets is prompting investors to turn to gold as a safe haven.
If US Congress does not address the fiscal cliff by the end of the year, the economy will be driven into recession and the country will see its sovereign credit rating downgraded it is feared.
Analysts at ETF Securities said ‘being long gold is potentially one of the best hedges against a worst case scenario in the US.
‘During the last Congressional stand-off on the budget ceiling in the summer of 2011 – and resulting US sovereign downgrade – the gold price rallied nearly 30%.’
With attention turned to the US Presidential election, there have been few signs of the Republicans and Democrats working together to resolve budgetary issues.
‘If this situation continues after the election and investor concerns about a possible US downgrade escalates, gold will likely be a beneficiary,’ ETF Securities said.
‘But the factor that will likely have the strongest positive impact on the gold price is Spain (or even Italy) asking for a bailout, permitting the euro to rally, the dollar to weaken and general risk appetite to improve,’ it said.
‘In the meantime, investors that want to hedge against worst case US fiscal cliff scenarios will likely continue to build long gold positions.’
The price of gold is up 0.54% at $1,723.30 in early morning trading.