Gold Rises, Then Falls on Obama Win; Stock Markets Turn Negative

The reelection of Barack Obama in the US presidential election Tuesday night has not resulted in an immediate lift for gold as some precious metals experts had predicted.

The yellow metal climbed to two-week highs following the President’s victory over Republican challenger Mitt Romney, reaching $1731 an ounce, but quickly lost momentum as the US dollar gained. Spot gold was last quoted at $1713.10, down 0.1 percent on the day. Gold futures were also down, with the December gold contract off 60 cents at $1714.40.

Gold hit an 11-month high of $1795 an ounce October 5 after the US Federal Reserve announced a third round of quantitative easing (QE3) designed to keep the US economy from slipping back in to recession. Bullion then slipped back to nine-week lows of about $1672 due to uncertainty over the outcome of the election.

QE3 involves the purchase of $40 billion worth of mortgage debt each month, and is considered to be bullish for gold which acts as a store of wealth and a hedge against inflation.

Gold’s downward move on Wednesday, while obviously extremely preliminary and transitory, appears to go against the predictions of some experts including Don Coxe, chairman of Coxe Advisors. A seasoned portfolio manager, Coxe said before the election that a second Obama term would be bullish for gold.

Meanwhile the election has resulted in a sea of red for North American stock markets. The S&P/TSX Composite Index was down 119 points at time of writing, the NYSE Composite was off 153 points and the mining-heavy TSX Venture Exchange shed 15 points.

The downshift in the markets is being attributed to worries about Obama’s ability to deal with the US “fiscal cliff” approaching and ongoing concerns over Europe. The fiscal cliff refers to a slew of spending cuts and tax hikes due to take effect on January 1 that threaten to push the US economy into recession.

Kitco quoted a financial futures analyst explaining why Obama’s reelection has resulted in an unexpected rise in the dollar:

“The weakness in the equity markets is a risk-off trade, which explains why the U.S. dollar is higher, along with the Japanese yen and the Treasury market,” said Alan Bush, senior financial futures analyst at ADM Investor Services.

“He said the conventional wisdom originally was that the dollar would fall because Federal Reserve Chairman Ben Bernanke would not be removed from his position if Obama was re-elected, meaning that the bond-buying programs to stimulate the economy would continue. Instead, Bush said, the dollar is benefitting from flight-to-quality type buying on global economic slowdown worries since other safe havens such as the yen and Treasurys are also higher.”

Stay tuned for more post-election coverage on Investing News Network, including an analysis of how a second Obama term is likely to affect resources including gold, silver and other extracted commodities.