Will gold prices drop if Mitt Romney wins?

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 Will gold prices drop if Mitt Romney wins?
US presidential candidate Mitt Romney has never been a big proponent of quantitative easing, a mechanism whereby bond purchases results in the US Federal Reserve unleashing fresh liquidity into the economy.

Now, this liquidity finds its way into risky assets and safe haven assets like gold. This is one reason why gold hit a high in early September, even before the Federal Reserve did announce its quantitative easing programme.

Now, should Romney become the President of the United States he's unlikely to be happy on the continuance of the Federal Reserve's easy monetary stance in the form of quantitative easing. This is likely to put pressure on gold prices, which could react if Romney wins.

Now here's the other side of the story. If Romney does win, analysts argue that he might find it more difficult to get the messy fiscal cliff (Bush tax cuts) resolved.

Since the markets will focus on the fiscal cliff , the dollar will come under pressure. Now, the dollar coming under pressure augurs well for both Gold and Silver. So, either way it seems to be a win-win situation for gold.

Also, if Romney wins its almost certain that Ben Bernanke, the Federal Reserve Chairman would step down when his term expires in 2014. Ben Bernanke has been hugely favourable to the equity markets and gold, on account of his easy monetary stance particularly in keeping interest rates low and announcing easing programmes.

If Obama wins of course there could be a smart rally in gold, as he supports quantitative easing programmes to help investment and ease unemployment.

In any case gold has dropped to a two-month lows as investors await the results of the U.S Presidential election, and China's upcoming leadership transition.

The moot question is would gold rally from its two months low. The probability of that happening are more, than less.


Read more about: gold
Story first published: Tuesday, November 6, 2012, 8:41 [IST]
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