Investors remained cautious ahead of the start of voting in the U.S. presidential elections

 Gold futures were higher during U.S. morning hours on Tuesday, as voters in the U.S. went to the polls to decide on the winner of a closely fought Presidential election.
Gold Touched 1720.42

Gold futures were likely to find support at USD1,646.45 a troy ounce, the low from August 31 and resistance at USD1,727.25, the high from October 31.

Investors remained cautious ahead of the start of voting in the U.S. presidential elections, with opinion polls pointing to a tight race between incumbent President Barack Obama and Republican contender Mitt Romney.

If the election comes down to a thin margin in a swing state such as Ohio, the outcome could be delayed for days or weeks, roiling markets as it did during the extended presidential battle in 2000.

Market players will also be keeping a close eye on congressional races, amid concerns over how lawmakers may deal with the looming U.S. “fiscal cliff”, approximately USD600 billion in tax hikes and spending cuts due to come into effect on January 1.

Greece was also on investors mind, as the country’s parliament prepared to vote on the latest rounds of austerity measures on Wednesday, which could determine if Athens receives its next tranche of financial aid.

Markets also continued to eye developments surrounding Spain, amid ongoing uncertainty over whether the debt-strapped country is moving closer to formally requesting a bailout from its euro zone partners.

A bailout would allow the European Central Bank to step in and buy Spanish sovereign debt, which would result in reduced borrowing costs for the debt-strapped nation. But Spain has been reluctant to do so because it may come with conditions on its budget.

Investors will then turn their focus to the start of the 18th Chinese Communist Party Congress on Thursday, where a once-in-a-decade leadership change is to take place.

Elsewhere on the Comex, silver for December delivery rose 0.6% to trade at USD31.32 a troy ounce, while copper for December delivery added 0.4% to trade at USD3.484 a pound.

Copper traders were looking ahead to a flurry of Chinese economic data later in the week, including reports on inflation and industrial production, to gauge whether the world second largest economy is heading towards a hard or a soft landing.

The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.

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Why buy gold

Many professional and retail investors view investments in gold as a hedge against risks in the financial system. Two major recessions have occurred in just the last decade: first, the bursting of the new economy bubble and later the mortgage scandal followed by a global financial and later an economic crisis. The still ongoing financial and economic crisis and the government responses have led to a strong increase in government debt in most developed countries like the US and the UK. For that reason, the economic and financial crisis has over the last several months developed into a sovereign debt crisis.

Recognising this, many investors now try to protect their wealth or parts of it by investing in assets which are less dependent on the stability of the financial system. Gold is one asset class, which is perceived as a store of value in the long term.

Gold is a unique asset class. Gold investments have historically shown a low correlation with investments in other asset classes such as stocks or shares, mutual funds, government and corporate bonds and even commodities and other precious metals.

Investing in gold can help to preserve value by reducing the risk of severe losses. The relative independence of gold investments from other asset classes makes investing in gold an attractive strategy for diversifying an investment portfolio. Portfolio diversification is a pillar of risk reduction. The probability of one asset class or a single investment significantly dropping in value is far higher than the chances that a well balanced portfolio of many different investments from various asset classes will depreciate in value significantly.

Over the last decade, gold investments were one of the best performing asset classes. In nominal terms, the price of gold has risen from below 300 US-Dollars to above 1,800 US-Dollars. In contrast to paper currencies like the US-Dollar, the British Pound or the Euro, gold is a limited resource. Gold cannot be inflated. For this reason, gold has historically remained a relatively stable purchasing power, whereas practically all currencies have lost purchasing power in the long run.

The characteristic of gold to retain its value makes gold investments attractive for retirement and pension purposes. Over the past years, gold has gained in popularity as a retirement asset.

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