Obama Victory Seen Bullish for Gold ETFs

November 7th at 8:40am by Tom Lydon

Gold ETFs continued to rise Wednesday morning in the wake of President Barack Obama’s election victory as traders positioned for more quantitative easing from the Federal Reserve.

The precious metal’s price spiked back above $1,700 an ounce on Tuesday. “If Obama is reelected, that would be a boost for gold because it means continuity on U.S. public spending and Federal Reserve monetary policy,” said Nicolas Berge, a trader at hedge fund Absolute Capital Group, in a Reuters report. [Gold ETFs Surge Above $1,700 as Voters Hit Polls]

Mitt Romney had indicated he would fire Fed chief Ben Bernanke if elected president.

Recent gold exchange traded fund flows indicate that investors are still bullish towards the metal. There are a number of catalysts remaining within the economy today that support an investment in gold, particularly with an ETF. Also, Europe’s debt crisis isn’t going away anytime soon.

“So have you missed the boat on gold? Perhaps not. Some compelling drivers remain, including the pending fiscal cliff and the Federal Reserve’s ‘unlimited’ quantitative easing program, which could mean higher inflation across the world,” Tom Taulli wrote for InvestorPlace. [Eight ETFs for Gold Exposure]

Gold is recovering following a pullback that started in early October, reports Trang Ho for Investor’s Business Daily. SPDR Gold Shares (NYSEArca: GLD) gained about 2% on Tuesday and the fund had brushed its 200 day-moving-average last week. This is the largest gold-holding ETF, with $72 billion in assets and an expense ratio of 0.40%. The physically-backed ETF  has made owning gold accessible and burden-free for precious metals investors. [Central Banks will Devalue Currencies, Gold ETF Bulls Say]

The Market Vectors Gold Miners ETF (NYSEArca: GDXis another way to play gold. The fund focuses on U.S. listed companies that are involved with the mining and exploration of the metal. GDX has posted a small gain of 1.13% year-to-date, gaining 22% from August through November. GDX has roughly $10.25 billion in assets, so it’s able to afford a low expense ratio of 0.52%. Another option for those that want a small-cap focused play is the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ). This fund focuses more on the exploration aspect, and has gained 26% from August through November. [Gold ETFs Eye 2011 High on Central Bank Stimulus]

Another force driving gold demand is the festive season in countries such as India and China. Jewelry and coin sales are robust at this time, and sales are expected to jump 35%, and 45%, respectively. The drop off in gold prices last week is encouraging for jewelry buyers, and in turn, investors, reports Rutam Vora for Business Standard.

“This festive season, we expect good demand for coins, one-kg bars and ETFs, unlike past instances, when jewellery demand shot up during weak gold prices,” said Suresh Hundia, former president of Bombay Bullion Association (BBA).

Some analysts think four more years of Obama is bullish for gold because Bernanke is more likely to be appointed to another term at the Fed.

“Bernanke will continue to have full reign with the potential of another term in which he can execute his QE to perpetuity,” said Jeff Sica, president of SICA Wealth Management, in an IBD report. “This will continue to weaken the dollar and increase the price of gold. The Obama Administration is firm in their opinion that the economy is improving, so I see little chance of them changing course in the next four years.”

Other physically-backed gold ETFs:

  • iShares Gold Trust (NYSEArca: IAU)
  • ETFS Physical Asian Gold Shares (NYSEArca: AGOL)
  • ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)

SPDR Gold Shares

 

Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.