Obama Win favors easy Money Policy – Bullions Rise
Barack Obama defeated Republican Mitt Romney, winning at least 303 electoral votes with 270 needed for victory. Gold and Silver continued climbing for a third day after rising very sharply yesterday on expectations the U.S. will continue stimulus measures to boost the economy after President Barack Obama defied history & won the Presidential election for a second term. President Barack Obama was re-elected president Tuesday night, put over the top by the crucial battleground state of Ohio following the most expensive election in U.S. history. Obama became only the second Democrat since Roosevelt to win another term. “You made your voice heard, and you made a difference,” Obama told supporters,” I will return to the White House more inspired and more determined than ever,” he said. ‘We’ve got more work to do. The Best is yet to come.” “This happened because of you. Thank you,” Obama tweeted to supporters. It got retweeted more than 318,000 times, a record. The crowd welcomed him by chanting, “Four more years!” There will be an immediate shift to government gridlock and the fiscal cliff issue, and that will be a headwind for stock markets.
Obama win has U.S. investors staring at Fiscal Cliff:
President Barack Obama will still have to contend with a Republican-controlled House of Representatives that could make forging a compromise on pressing issues like the coming “Fiscal Cliff” difficult. A looming budget crisis could send the US Economy reeling. President Obama will soon need to address a so-called Fiscal Cliff of more than $600 billion in tax increases and spending cuts, scheduled to take effect at the end of 2012 that could severely strain economic growth unless Congress can reach a budget compromise. Obama is expected to demand tax increases for the wealthy as part of a deal to reduce spending to tackle the nation’s deficit. Steven Englander, Citigroup’s head of G10 foreign exchange strategy, said markets could panic toward year end if it looks as though no deal is imminent to avoid the fiscal cliff, reported Reuters. If that happens, investors will think twice about lending the U.S. government money at low interest rates, which would strain the economy, widen the budget deficit and hurt the dollar. It also raises the possibility that major credit-rating agencies will cut the U.S. debt rating. The market reacted harshly to Washington gridlock after failed legislation to backstop the banks in 2008 and again during protracted talks to raise the U.S. debt ceiling in 2011. Standard & Poor’s stripped the U.S. of its pristine triple-A rating in 2011; the agencies have said they will evaluate budget negotiations and solutions and may take action next year.
Gold Bulls Ecstatic:
An Obama win favors a continuation of the current easy money policy. The Obama win did remove uncertainty about the future of Fed policy. The Fed’s increased emphasis on employment is here to stay. The Gold Markets reward this certainty by bidding up Gold, selling off the US Dollar versus all major currencies. Comex gold and silver shot up higher on Expectations of an Obama win & also as the market recovered from the rather hard slide that it took on Friday when Gold markets priced in a Romney win. Gold & Silver will retain bullishness till the easy monetary policy remains in force as Inflation rises are a certain aftereffect of this kind of a policy action. The Fed’s easy-money policy has pushed down the value of the dollar, though, and some worry more dollar weakness may be in store, particularly if investors see signs of rising Inflation. Gold remains a natural hedge option in a scenario where Inflation rises sharply. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The Fed’s increased emphasis on employment is here to stay. The US Dollar reversed earlier gains versus the Euro after Obama defeated Republican challenger Mitt Romney, on speculation Obama’s re-election as President will boost chances of the US continuing monetary stimulus policies that tend to weaken the currency. The US Federal Reserve had unveiled a plan in September 2012, to buy $40 billion of MBS – Mortgage-backed securities every month in a third round of so-called quantitative easing – QE3, after $2.3 trillion purchases of bonds from December 2008 and June 2011. Any worries that the Federal Reserve is done with stimulus are unfounded and the future still looks bright for more easing programs. Fed may soon introduce a new plan of Treasury purchases when Operation Twist winds down into year-end. A Chinese National Party Congress should be favorable to industrial metals, crude oil and gold due to prospects for new stimulus policies. Also if Greece passes austerity measures and receives further financial assistance, “this should make markets feel better and help commodities to move higher. We should start seeing more demand for gold as a result of purchasing-power hedging and due to the low opportunity cost to hold it, as real interest rates are likely to decline further. It could be argued that the Fed would not mind higher inflation, and that if there was a policy error to be made, it would be on the side of inflation. All above mentioned factors are highly Gold supportive. Lower interest rates historically have helped gold prices and higher rates have been gold-negative.
Greece on Fresh Austerity Measures:
Demand for the Euro was limited as Greece headed for a vote on austerity measures needed to keep its bailout on track. In Greece, the 238 pages of austerity measures, ranging from raising the retirement age two years to 67 to eliminating Christmas and holiday payments for pensioners, will be debated in the 300-seat Parliament today. Approval of the legislation is the first of the parliamentary votes required by Nov. 12 to unlock a 31 billion-euro ($40 billion) portion of international aid. Greek Prime Minister Antonis Samaras must stem defections from his three-party coalition to convince European Union leaders that his government is serious about staying in the euro and implementing reforms.
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