2012 Election: President Obama And Precious Metals

Nov. 13, 2012 10:55 AM ETGLD, SLV, JJP, GLTR, DBP5 Comments
Alex Canahuate profile picture
Alex Canahuate
24 Followers

Now that President Obama has won the election, what does that mean for precious metals?

Precious metals opened moderately higher Thursday morning in the aftermath of President Obama's reelection. However, once the U.S. stock markets started to tank (down over 2% at the time this was being written), metals have been pulled slightly lower and are currently in the red - but not nearly to the same extent as stocks. While precious metals may not have reacted dramatically to the election results, the reality is that President Obama is good for precious metal prices.

First, let's address the stock selloff. The European Commission reduced its 2013 growth outlook, stating the region should narrowly avoid recession with an annual growth rate of 0.1%. This is significantly lower than the commission's previous 2013 growth estimate of 1%. Combine ongoing European debt concerns with the looming prospects of President Obama and a split Congress trying to navigate the fiscal cliff, and risk aversion is understandably high.

The reality is that if QE3 was insufficient to push stocks higher, the directional skew for equities is to the downside. Stocks actually sold off last Friday as a result of better than expected employment data. One reason for this development is that a rosier picture of the U.S. economy means a lower likelihood of further central bank stimulus. This paradox - and it is a paradox because one would normally expect stocks to rally after positive economic data - speaks to a disconcerting dynamic wherein current stock valuations may only be supported by the prospects of further stimulus. While we will more than likely get additional stimulus going forward, this is an unhealthy reality and should elicit a rising degree of prudence with regards to equity positions.

When discussing the outlook for precious metals, within the framework

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Alex Canahuate profile picture
24 Followers

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