Obama win destroys the dollar: Rupee, gold, oil surge
US President Barack Obama winning a second term at the office is broadly being seen by the markets as bad news for the US dollar.
Spot gold prices surged $40 to $1,725 a troy ounce in late trade last night even before confirmation came in that Obama had won.
And as soon as rumours gave way to concrete news about Democrat nominee Obama's second term win – and Republican candidate Mitt Romney’s loss – ground beneath the fickle dollar gave in, proverbially speaking, and gold surged further to near $1,730 per ounce as Obama was delivering his victory speech.
The dollar fell broadly in the foreign exchange markets early on Wednesday as reports confirmed that Obama had won the closely-fought election, which in turn means that that the US Federal Reserve’s debatable quantitative easing programme will remain in place.
The drowning Indian rupee, thus, managed to get a straw of hope and clawed back some of yesterday’s losses, rising 1 per cent in one day to Rs14.73 against the dollar-pegged UAE dirham from a two-month low Rs14.89 it made yesterday. Brent oil prices swelled by $4 to $111.45 a barrel on the news.
“The evidence showing Democrats destroying the dollar more than Republicans, and second-term Presidents benefitting gold prices even more during their second innings, is overwhelming,” says Jan Skoyles, Head of Research at The Real Asset Company, an online gold investment platform.
According to a study prepared by the firm, Democrats prove to be the best party for gold investors worried about the gold price compared with the Republicans. While the Republicans accounted for a net increase of 121.27 per cent across their terms in office since Nixon, the Democrats account for an overwhelming 358.68 per cent increase in the price of the yellow metal.
The study also illustrates that second-term presidents almost always push the gold prices higher after their re-election than during their first terms.
“Obama isn’t guaranteed to drive up the gold price just because he’s a nice Democrat and spends lots of money on taking responsibility away from people,” says Skoyles, but is quick to point out that the firm's research found presidents granted a second-term have a marvellous time showing everyone just how much money they can spend, devaluing the currency further and making that precious metal glister even more.
“It seems that during their first terms Presidents are more tempered than in their second,” she says.
Traders are indeed treating Obama’s victory as a cue to sell off their dollars as it signals unabated continuation of the Fed’s $40 billion-a-month bond-buying programme to spur the world’s largest economy.
Going forward, the next major challenge that the US dollar faces lies in the so-called fiscal cliff, which will force the US government to sharply cut spending and hike taxes by January 1, 2013, unless the country’s politicians find a compromise on reducing budget deficits.
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