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Obama was considered the best candidate for silver. But will his re-election be bullish for silver in the near term?
The close race for the US presidency clearly reveals that not everyone supports Obama as America’s leader. However, it is widely believed that he is the best choice for silver investors.
One of the only true things that Obama said during his campaign was that he inherited a lousy economy, according to Peter Schiff, CEO of Euro Pacific Precious Metals.
“If Obama thought the economy he inherited was lousy, wait until you see how lousy the economy is going to be that Obama’s successor inherits … it is going to be much worse,” Schiff said in a post-election video blog.
Schiff predicts that a crisis will erupt in the US before the end of the president’s second term and said he foresees inflation wiping out those with wealth and dollar investments. He urged people to position themselves now for that event by purchasing gold and silver.
Inflation is one of the primary reasons an Obama re-election is considered bullish for silver.
With the Obama administration comes a Bernanke-led Federal Reserve. With the reins of the US economy held by two leaders who are widely considered reckless in their handling of money, many believe the next four years will hold wild spending and borrowing coupled with large-scale money manufacturing.
Remember that QE3 was the most anticipated market event of the year. Each round of this type of monetary policy, including the latest, has, to the delight of investors, driven up silver prices. However, for some silver investors what is more important is that the longer quantitative easing is underway, the more expectations of inflation will build and the closer many will perceive the demise of the US dollar to be. That is an event that is expected to be even more bullish for silver.
Many were concerned that headwinds for silver would be produced if Mitt Romney, the Republican candidate, won the election. Romney is not overly fond of Bernanke and as president, Romney was expected to replace the Fed Chairman.
Romney is also a proponent of more conservative spending and claimed that he would operate the US government more like a business. He planned to create millions of jobs and said that he could put the US economy back on the right track. All of these factors indicated that he could be a serious threat to the existence and continuation of quantitative easing.
In a recent market note, Standard Bank pointed to the market’s “comfort from Obama’s re-election and the implied support this gives to continued monetary accommodation.”
“Participants didn’t seem to take notice of St Louis Fed President Bullard who argued yesterday that monetary policy might be a little easier than it seems on the surface. In light of this, he suggested that it could be hard to argue for an extension of Operation Twist which ends this year,” the bank said.
With the election now behind him, President Obama can once again devote his attention to running the country. And one of the most pressing matters at hand is the fiscal cliff, which will result in massive spending cuts and tax increases if not avoided. If the US economy is pushed over the edge, a recession, possibly a very deep one, is expected.
President Obama has the task of rectifying this situation — and others — despite a congressional divide that mirrors his first term. Democrats control the Senate and Republicans control the House of Representatives, which has raised concerns about the likelihood of a resolution of the fiscal cliff and other important issues.
This uncertainty, along with re-emerging jitters about Europe, is expected to prompt safety seekers into action. Generally, nervous markets are considered bullish for silver, especially given that it tends to track gold, which is one of the world’s preferred safe havens.
Gold rose last week and some of the buying was indeed attributed to safe haven demand.
While that may continue, Deutsche Bank does not appear optimistic that silver will successfully be able to hook its caboose to the train this time. On the contrary, the firm is looking for industrially-oriented precious metals to lag.
“We continue to believe gold prices will set new highs,” the bank said. “The under-performance of silver and PGMs (platinum group metals) relative to gold over the past month will continue, in our view, given the uncertainty towards the U.S. fiscal cliff and its implications for U.S. growth.”
In the days following the election, a second Obama term has had little effect on silver. One uncertainty has been swapped for others. Silver remains in the range where it was during the weeks before Americans went to the polls. And while the bullish potential of further monetary policy and inflation remains, so too does the question: what is in store for silver in the near term?
Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.