Gold is mildly defensive, trading in thin holiday conditions. However, the firmer tone that emerged in the wake of President Obama's reelection last week is being viewed as a generally positive harbinger for the gold market.
With the contentious political divide still in place in Washington, there is an expectation that meaning fiscal changes aren't going to be forthcoming. While the 'fiscal cliff' and the debt ceiling will have to be addressed in fairly short order, some limited compromised that will allow for the can to be kicked further down the road is the most likely outcome. In short, the underlying problems will swept under the rug yet again. This will force the Fed to continue doing what it has been doing, propping up the economy with its uber-easy monetary policy, as the Nation's debt and the Fed's balance sheet balloons.
Investors in tune enough to realize that recent dollar strength is really more about euro weakness, will continue to buy gold as a safe-haven asset. Similarly, sovereigns will continue to buy gold in an effort to diversify their reserve holdings. Australia's Daily Reckoning quoted macro strategist Dan Amoss as saying, "Gold is the perfect hedge for the slowly eroding value of China's U.S. Treasury portfolio." Amos added, "After the U.S. elections revealed a country likely heading more towards a European economic model, the shift into gold should accelerate."
Over the weekend, ZeroHedge reported that Chinese gold imports from Hong Kong surged 30% to 69.7 metric tonnes in September. Year to date imports have reached "a whopping 582 tons of gold, more than the official holdings of India at 558 tons." China is considering issuing additional import licenses, which could further accelerate the countries voratious accumulation of gold. Xie Duo, general director of the financial market department of the PBoC, told a precious metals industry conference in Hong Kong that they would "further open up the market and quicken the steps to integrate into the international market."
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