Gold price jumps 2%. Is this the start of the Obama rally?

Gold soared $35 an ounce easily scaling the $1,700 level in early dealings on Tuesday as US voters go to the polls in a hard-fought election that has the potential to radically alter the outlook for gold.

Gold for delivery in December ended the day close to its highs at $31.80, or 1.9%, higher to settle at $1,715 in New York.

The US Fed’s QE programs and ultra-easy monetary policy have been a massive boon for gold – the metal has more than doubled in value since December 2008 when Ben Bernanke first cranked up the money printing machine.

If gold can stay at current levels it would be the 12th year in a row that gold has shown annual gains, but that’s a BIG IF.

If Mitt Romney wins the US presidential election he could stop the metal’s advance dead in its tracks.

A Barack Obama victory on the other hand would send gold off to the races and today’s sharp gains may be an indication that the precious metal markets are betting on a second term and a continuation of current ultra-accommodative policies.

However if Romney enters the white house the Republican would almost certainly replace Bernanke, whose term ends January 2014, with a more hawkish chairman.

The good fortune of the yellow has been increasingly tied to monetary policy in the US – easy money adds to gold’s allure as an inflation hedge and storer of wealth amid currency depreciation.

The gold price has taken a few hard knocks from 2011’s record levels and the spikes downward have all been thanks to actions or pronouncements by Bernanke and the Fed.

At the start of April for instance gold dropped some $60 an ounce in a single session when Fed minutes appeared to indicate QE3 was off the table and its policy of zero interest rates may be coming to an end sooner than previously thought.

The same thing happened on June 7 when gold dropped $50 to under $1,600 an ounce in a couple of hours after Bernanke delivered “anti-climactic” testimony to the US Congress.

October 5’s drop came after the better than expected jobs numbers that raised the prospect that QE3 may end a few months earlier than the scheduled.

Just a hint of an end to QE and gold traders duck for cover.

That was not the first time traders got cold feet after breaking an important psychological level.

A similar pattern was followed in the days after the metal reached a record high above $1,900 an ounce in August 2011. The yellow metal slid for two days after hitting the record, losing $105 or 5.6% in value in a single day.

In 2011 trading in gold was the most volatile since 1980 with the gap between the year’s highs and lows coming in at close to $600 an ounce or a 32% range.

In 1980 the spread was even greater at more than 40% and followed the 21 January 1980 record of $850 an ounce.

It is worth noting also that rallies in the metal has been most striking under democratic presidents –1980’s $850 (some $2,400 in today’s dollars) was under Jimmy Carter and of course Barack Obama was in the White House when gold hit an all-time high.

In 1980 gold also fell precipitously after setting the record – within two days it fell back to under $700 starting a bear market that lasted almost three decades.

Now there’s a scary prospect.

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