Friday, November 9, 2012
Gold's Safe Haven Status Back in Play
In the short term the market knew that if Mitt Romney had been elected president the price of gold and silver would probably have went through a temporary drop, based on the actions of what a President Romney would have done.
On the other hand, the market also factored in a win by Barack Obama would be good for gold and silver, with expectations being Obama would continue to implement the same failed policies he did the first four years of his Presidency.
That has born out well so far, as the price of gold continues to rise immediately after the election, although there are other factors coming in to play.
The most significant is the safe haven play, which has grown as the presidential race played out.
No matter what is done going forward, there is little desire in Washington for politicians to take the needed steps to deal with the economic disaster and the policies that have been behind the cause of it, including an unfettered Federal Reserve that sees only printing more money as the answer to economic weakness.
This is happening in light of a stronger U.S. dollar, which suggests investors understand it's a faux strength, and not one that is inherent to the currency. The only reason it still is perceived by some as a safe place to park their money is that other major economies also have had their central banks throw money at the problem as well, resulting in the currencies moving down in value together, giving the impression of things going on as usual.
But the move in gold price confirms that a growing number of investors know that this is the case, and gold will continue to rise in response to that reality over time.
Continually in the background is also the ongoing sovereign debt crisis and Europe and the march of the region into recession; which is ensured now.
All of this would be enough to push gold and silver prices up, but we haven't even seen significant, official inflation yet, and once that kicks in, all bets are off as to how high the price of gold and silver will go. It's only a matter of when, not if that happens.
Finally, China and other Asian countries appear to be buying up a lot of gold, offering price support to the precious metal, and over time, if China is bolstering its gold supply for the purposes of acquiring other commodities in the future, this will add even more strength to gold, driving up the price even further.
The VIX, which measures the fear factor, has also been rising recently, confirming there is more fear in the market than there has been, providing more incentive to place capital in gold.