Four more years of Barack Obama means four more years of his fiscal policies. For gold bugs, that’s a good thing.
Mr. Obama’s first term saw three injections of quantitative easing that roused fears of inflation and a debased U.S. dollar. The stigma surrounding QE - that, by “printing money,” it creates bigger economic problems than the ones it’s designed to solve - saw investors turn to gold in droves. The price has risen 134 per cent since the president was first elected, which happened to be timed quite well with the beginning of the recession.
With Mr. Obama’s re-election and an unchanged Congress power structure, it’s expected that investors will continue to seek safety in gold in Mr. Obama’s second term.
It would be hard to expect anything else with “the same bunch of characters that ushered in this mountain of debt in the first place,” said John Ing, president and gold analyst at investment dealer Maison Placements Canada Inc. Mr. Ing fears that the trillions of dollars in deficits the U.S. government racked up during Mr. Obama’s first term will be compounded in his second, driving the dollar “dramatically lower” and pushing bullion prices up.
Fed chairman Ben Bernanke, whose term ends in January 2014, will likely keep his job under Mr. Obama - and, if he’s still unable to lower interest rates any further, may resort to further rounds of QE to stimulate the flat economy. This has left investors fearing for U.S. currency value, but seeking opportunities in gold. Gold prices rose 36 per cent during the QE1 program and 21 per cent during QE2.
Patricia Mohr, Scotiabank Group’s vice-president of economics and a commodity market specialist, echoes the notion that the president’s re-election will be a positive for gold, though only because of broader fears. “It remains to be seen whether it [Mr. Obama’s re-election] will be a positive for the economy,” she said.
Gold prices saw a 1.4 per cent jump Tuesday evening as election results poured in, but fell back by mid-day Wednesday to $1710.06, almost even on the day.