A second term for the Bush administration leaves little doubt about the future direction of the US dollar: most analysts expect continuing weakness in the greenback in view of the low priority given to rising fiscal and trade deficits during the first term. Writing in his weekly commentary, Christopher Wood of CLSA investor services argued the election outcome is positive for gold, as a consequence of the growing economic imbalances and lack of political will to face the issue. 'Bush talks laudably, from a pro-capitalist standpoint, about the importance of tax cuts but has failed spectacularly to do anything about government spending,' he said. 'These imbalances are only possible because of America's growing abuse of the US dollar's role as the reserve currency of the world. 'This is why the end game for America and the world economy looks increasingly likely to be the collapse of the US dollar paper standard.' The latest American national accounts data points to a worrying state of affairs. The personal savings rate has declined to the lowest level since monthly reports began in 1959, apart from a brief period after the US terrorist attacks in September 2001. The US personal savings rate as a percentage of disposable income fell to 0.2 per cent in September, compared with an average of 7.4 per cent since 1959. The savings rate for the third quarter fell to 0.9 per cent, a low not seen since the 1940s. 'These figures are a reminder ... that the American economy remains an accident waiting to happen,' he said. At the close of trade on Friday in New York, gold prices shot to a 16-year high as the dollar fell to record lows against the euro. December delivery gold gained US$3.50 to close at US$434.30 an ounce, the highest price for benchmark monthly futures since July 1988. The euro rose as high as US$1.2950, its highest level against the dollar since the single European unit was adopted in 1999. Much of the economy has been propped up by credit. However, recent figures show the year-on-year growth in outstanding consumer credit has declined to the slowest pace in more than a decade, as consumers grow more cautious. Household income is also declining, according to the Census Bureau, which says real median household income has dropped for four consecutive years. Real median income fell to US$43,318 last year, down 3.6 per cent from a peak of US$44,922 in 1999. Mr Wood says the Bush administration will probably seek to make permanent the tax cuts passed during its first term. He expects the US stock market to continue to rally in the near term, partly due to the seasonally strong time of year. The chief Asian strategist for ABN Amro, Eddie Wong, believes global markets could be in for a painful wake-up call as stimulative fiscal and monetary polices begin to unwind. 'Bush winning the election has not changed the big picture,' he said. 'The US needs to face the aftermath of the most aggressive fiscal pump-priming in the last 50 years,' he said. The tax rebates, low mortgage rates and heavy government spending that held off recession in the first term will not be in the arsenal this time, he says. The tax rate on personal income for the average US household has dropped to just 10.6 per cent this year, down from 14.8 per cent in 2001. 'The tax burden has been falling substantially,' he says, adding fiscal authorities are running out of options and will have little choice except to let the next economic slowdown run deeper and harder. He expects the downturn to begin by late December or early next year. The consequence could be a perfect-storm scenario: a synchronised global recession that encompasses the bulk of the global economy, hitting the US, China, Europe and Japan. Faced with few fiscal policy options, the US will have little choice but to let the dollar go. 'The US has one final policy to cushion the slowdown ... allow the dollar to depreciate,' he said. The prospect of a stock market rally well into January is more than idle speculation, according to economist Marc Faber, author of the Gloom, Boom & Doom Report. 'Almost always in an election year, the stock market bottoms out around election time, irrespective of Democrat or Republican win,' he said. But caution is warranted, he says, since election rallies are emotion-driven and many fade out unexpectedly. Also, the Nasdaq has outperformed the Dow Jones Industrials since August, a pattern that usually suggests an important peak may be at hand for the technology-laden index. He believes it is a good time to sell down commodity holdings -including crude oil - as recent data suggests China is 'decelerating faster than is generally perceived'. Declining automobile sales, growing inventories of consumer goods - and sharp breaks in the prices for some industrial metals - point to a possible hard landing of the mainland economy next year. A rally in US bond prices may be the market's way of foreshadowing an American slowdown next year, he says. In the long term, he expects the gold price will rally inversely to the S&P 500 but there says may be too much dollar bearishness at the moment. 'I don't expect much further near-term weakness, as the entire world is now convinced the dollar will only go down in value,' Mr Faber said, adding he recommends accumulating gold, silver and the Singaporean dollar.