The activity in the precious metals market on Wednesday is suggesting that gold and silver may be setting up for a multi-week rally after President Barack Obama was elected to a second term. While the stock market is taking a pounding, with the Dow down around 260 points in the last hour of trade, gold and silver have been very resilient. At last check, COMEX gold futures were up around 0.23 percent to $1,719.00 and silver futures had recorded a small loss of 0.57 percent to $31.85.
While the performance is not terribly impressive in and of itself, it does suggest underlying strength considering that all other risk assets are getting hit very hard. The volume figures for the major ETFs that track gold and silver also suggest that a lot of buying is going on. Around 12.4 million shares of the SPDR Gold Trust ETF (GLD) have traded hands on the day compared to a 3-month daily average volume of 9.3 million. The iShares Silver Trust ETF (SLV) is also moving on heavier than normal volume.
The re-election of Barack Obama ensures that the country's deteriorating fiscal situation will be back at the forefront. Although it is impossible to know exactly how Mitt Romney would have governed, his rhetoric regarding fiscal policy was much more hawkish than that of the President. With the fiscal cliff approaching, and Obama's track record of deficits and spending, it would seem to make sense that the markets will be leery of the fiscal implications of another Obama term.
The likely result of this is that precious metals will continue to rise. Tuesday's elections showed that the country remains very divided and a large swath of the United States is distrustful of the current administration's policies. This fear and distrust is plainly evident in how gun stocks are reacting to the Obama victory.
Shares of Smith & Wesson (SWHC) are up 10 percent on the day to $10.38 and Strum, Ruger & Company (RGR) has climbed seven percent to $47.60. It would seem to be logical that gold and, to a lesser extent, silver, will follow suit shortly. The reason the metals are not higher on Wednesday is likely because there are a lot of macro traders who are selling based on what is going on in the stock market and the fact that the dollar is higher on the session.
These traders are following the logic that a lower stock market and a higher dollar are usually bearish for precious metals. The fact that gold and silver have been so resilient, however, suggests that there are a considerable number of high-conviction buyers involved in the precious metals market on Wednesday.
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