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LAWRIE WILLIAMS: Economic stimulus key to gold price advance

With only around a week left until the official U.S. Presidential election date it now seems increasingly unlikely that a new U.S. economic stimulus package will be agreed before November 3rd, but once the election has been decided we think such a package will be forthcoming quite rapidly whoever emerges victorious.  The adverse effects of further delays could be pretty horrendous for the virus-stricken unemployed sectors of the U.S. public.  Indeed the unemployment situation could well get worse before it gets better, particularly if there are further delays in a new stimulus package.  Bankruptcies would likely increase while more small businesses will be forced to shut down and lay off their workforces.

A second factor will be the size of a stimulus package if and when it does materialise.  A Biden victory – particularly if the Democrats win a majority in the Senate to go with their advantage in the House (which is not seen to be under threat) – would probably lead to a bigger government handout than a Trump victory and a Republican-maintained Senate majority.  The bigger any stimulus give-away the bigger the likely gold price rise, probably accompanied by yet another recovery in the equity markets, a possible further fall in the dollar index and a greater likelihood of an increase in the inflation rate.

So what are the odds of either of the above post-election scenarios occurring.  The current opinion polls do indeed forecast a Biden victory and a possible Senate majority for the Democrats.  But, and it is a big but, the polls were horribly wrong last time around and they are probably too close to call this time.  Any last minute swing either way could make a huge difference.  Certainly some of the so-called ‘battleground states’ on which the final outcome will depend under the U.S.’s electoral college system seem to be seeing a very close battle indeed – notably Florida with its 29 votes (out of 538) in the college up for grabs. 

If Biden and the Democrats win Florida, they will probably win the Presidency.  Only three states – California, New York and Texas) – have a greater editorial college impact and the first two of these are strongly Democrat states while Texas trends Republican, but could be vulnerable.  Huge swathes of middle America – geographically – are Republican shoe-ins and most of the coastal states tend to vote Democrat. 

At the latest count, according to the website. The current most likely electoral college outlook is for Biden to secure 232 votes for sure and Trump 125, but states covering 181 electoral college votes are described as toss-ups. Last time around the vast majority of these went for Trump which gave him the 270 he needed for victory despite Hillary Clinton securing more votes overall.  Such is life and U.S. politics!  

Trump has been threatening to challenge the electoral result in the courts if he loses, on mostly seemingly spurious grounds, but now he has managed to pack the Supreme Court judges with a right-leaning majority there are worries that such a challenge, if it occurs, might prevail.  However we firmly believe that if such a challenge does materialise, Trump’s arguments, without serious proof, could well fail even with a pro-Republican Supreme Court.  All the Supreme Court judges are thought to be of high integrity and may not necessarily be swayed by basic political leanings.

The coronavirus pandemic, the seriousness of which seems to be being continually downplayed by the U.S. President, may end up reflecting badly on his handling thereof and help deliver the election to the Democrats.  In reality no Administration trying to protect its citizens from the virus, but at the same time trying to mitigate its effects on the economy, would have necessarily done any better.  However Trump’s somewhat cavalier attitude to mask wearing and social distancing is now seeing the virus spread dramatically in Republican controlled states where often mask wearing and distancing are seen as unnecessary.  Consequently the U.S. will join the 700 club today or tomorrow as being one of the eight major nations recording a virus death rate of 700 or more persons per million of population recorded as dying from the pandemic.  Of countries with a population of 5 million or more, the U.S. falls in eighth place on this list, only exceeded by Peru, Bolivia, Brazil, Chile and Ecuador in the Americas and Belgium and Spain in Europe.  No other country has yet reached this unwanted milestone, although Mexico and the UK are not far behind.

So if the opinion polls are correct and there isn’t a big last minute swing to the Republicans, we should perhaps expect a Biden victory and even possibly the Senate falling into Democrat hands.  That should lead to a bigger stimulus package and the kind of boost which could drive gold up through the $2,000 mark again, although the timing is difficult to predict.  Ideally this should happen before the year-end as delays beyond this will cause undue hardship.

27 Oct 2020

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