BULLION MORNING - Gold enjoys Obama victory bounce

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Angela Shardaangela.sharda@fastmarkets.com+44 (0)20 7264 2489

London 07/11/2012 - Gold continued to move higher on Wednesday morning on the expectation that the US will continue to provide monetary stimulus after Barack Obama won a second term as president.

Spot gold was quoted at $1,725.64/1,726.21 per ounce, up $14.63 on the close and having peaked at $1,729.85 earlier. It broke back up through $1,700 yesterday afternoon - it has gained around $40 in the past 17 hours or so - after early exit polls suggested that Republican challenger Mitt Romney would fail to unseat Obama.

"An Obama victory was perceived to be good for gold and so it has turned out to be," David Govett, head of precious metals at Marex Spectron, said.

"The metals rallied strongly yesterday afternoon as it became fairly apparent that Obama would win and overnight, we have seen one of the busiest sessions in Asia for many a month, with gold rallying from $1,705 to $1,725 on the back of the President's victory," he added.

Obama is likely to keep Ben Bernanke as the chairman of the Federal Reserve and to maintain its third round of quantitative easing (QE3) and ultra-low interest rates.

"We will see a continuation of the loose monetary policies pursued by the Fed and chairman Bernanke for the foreseeable future. Low interest rates and more QE all add up to favourable metal prices and hence the rally," Govett added.

"The uncertainty regarding the election has been removed but the fundamentals remain the same," he added. "We have the same president, the same economic policies and the same problems remaining."

The fiscal cliff - the point at which a series of tax increases and government spending cuts are set to come into force automatically next year - is the first major obstacle for Obama's government to negotiate. The risk is that these changes will strip $607 billion from US GDP, potentially sending its economy into recession.

The dollar edged lower against the euro after Obama's re-election - it was last at 1.2838 - on the expectation that QE will continue, which is bearish for the US currency.

Still, the euro may come under pressure while Greek workers carry out a 48-hour general strike in protest against a proposed package of 13.5 billion euros of cuts that goes before parliament today. An agreement is necessary to secure its ECB bailout terms.

In EU data, retail sales growth for September came in at -0.2 percent today, reversing the previous month's gain of 0.1 percent and below the forecast for 0.0 percent.

China will also be in focus for the 18th National Congress of the Communist Party which starts tomorrow, with the mandate of creating a new leadership

"The next few days will be spent digesting the US result, watching the Chinese 'elections' and keeping a close eye on Greece to see if it can get its austerity budget passed," Govett added.

In other precious metals, silver was last at $32.17/32.22, up 32 cents from Tuesday's close. Platinum was last at $1,561.50/1,565.50, up more than $8, and palladium gained $7 $to 620/623.40.

(Editing by Mark Shaw)

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