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Massachusetts Election Impacts Gold
By Patrick A. Heller

On Jan. 19, Massachusetts voters elected Republican Scott Brown to finish the remaining two years of the late Senator Ted Kennedy’s term in the U.S. Senate. He was the first Republican elected to represent Massachusetts in the U.S. Senate since 1972.

The election of Brown, whom Senate Majority Leader Harry Reid promised to seat immediately, all but eliminates the ability of Senate Democrats and their two independent allies to stop any Republican filibuster of legislation in that chamber. In the past year, much of the legislation enacted into law was done by the Democrats with little or no Republican support. In many instances, Republican input on potential legislation was neither sought nor accepted. That era will end as soon as Brown takes his seat.

The broad implication of the election, especially when considered with the somewhat surprising Republican gubernatorial victories in New Jersey and Virginia last November and the growing number of incumbent Democrat senators and governors who have announced that they will not run for re-election this year, is that the American populace does not give strong support to Democrat President Barack Obama or his overall legislative agenda. Some may already consider President Obama a lame-duck president.

President Obama has devoted a significant amount of his time in office and political capital in trying to enact legislation for a major modification of health care. There is distinct possibility that now either nothing will come of this effort or that it will be extremely watered down.

Unfortunately, a President whose legislative agenda lacks widespread public support sends a signal to the rest of the world that the U.S. economy and the value of the U.S. dollar may be on shakier ground than formerly perceived. In this circumstance, the normal response from foreign investors and trading partners would be to reduce their U.S. dollar exposure against a risk of further decline in the value.

Almost certainly, some of the funds pulled out of the U.S. dollar will result in higher demand for precious metals like gold and silver. This would likely push up their prices.

In order to minimize the political and economic fallout from the Massachusetts senate election, the U.S. government has an incentive to force up the value of the U.S. dollar and knock down the prices of gold and silver. On Wednesday morning, that is exactly what is occurring.

On Wednesday morning, platinum and palladium prices are little changed. These are two metals for which the U.S. government has no reason to try to manipulate prices. The only precious metals that are suddenly and significantly lower in price are gold and silver.

In my judgment, the current lower gold and silver prices are just a temporary blip on the continuing strong bull market for both. I also expect the U.S. dollar to soon resume its long-term further decline in value.

There are a number of potential buyers of precious metals who say they are waiting for the “right time” to step up to buy. I think that today buyers are being offered an excellent opportunity. Don’t miss out.


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