Gold Prices Pop on Election-Eve Jitters

Gold prices are popping Tuesday afternoon as investors eagerly await the outcome of the U.S. midterm elections and the Federal Open Market Committee meeting on Tuesday and Wednesday.

Author:: Andrea Tse
Publish date:: Nov 2, 2010 4:38 PM EDT

(Gold story updated with price changes and interviews with analysts)
NEW YORK (TheStreet) -- Gold prices were popping Tuesday afternoon as investors eagerly awaited the outcome of the U.S. midterm elections and the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday.

Election-eve jitters and additional disquieting news from overseas about terrorism and short-covering ahead of tomorrow's Fed meeting all contributed to today's up-move," George Gero Vice President, Global Futures, RBC Capital Markets said.

While many gold investors have already accepted and factored in a Republican retaking of the House and greater Republican clout in the Senate, many also believe that gold still has more upside given the boost the Republican win would provide one of the loudest critics of the Federal Reserve and supporters of the gold standard: Texas Republican Rep. Ron Paul.

"You would certainly not need a Federal Reserve if you have a gold standard," he had told

Forbes

in an interview earlier this year. Many believe that Republicans regaining control of the House would increase Paul's ability to examine the Fed and U.S. gold reserves.

Gold for December delivery was popping by $5.70 to $1,356.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Tuesday has traded as high $1,359.90 and as low as $1,350.20.

The

U.S. dollar index

was softer by 0.7% to $76.75, while the euro was up 1% to $1.40 against the dollar. The spot gold prices were rising by $5.60, according to Kitco's gold index.

Gold & Energy Advisor editor James DiGeorgia isn't surpised about Tuesday's gold advancements. "I think it's a reflection of what we've been seeing all along: the extensive monetary policy coming from the Fed. Until the U.S. starts taking austerity steps to bolster the value of the dollar, this trend we've been seeing in the last ten years (the rise of gold prices on dollar weakening) will continue.

DiGeorgia maintains that gold prices will reach $1,400 by the end of the year.

The FOMC meeting is slated for Tuesday and Wednesday, after which, on Wednesday, the Federal Reserve is expected to announce a fresh round of quantitative easing to help jumpstart the U.S. economy. The measure is expected lead to higher inflation and pressure the U.S. dollar -- which would be bullish for gold prices.

However, investors are still wondering about the size of the measure, which many believe will initially be $500 billion, but could also be less than expected. Moreover, there's been widespread belief that the Fed's efforts to flood the economy with more money won't necessarily lead to inflation, pointing to Japan's lack of success with quantitative easing.