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LAWRIE WILLIAMS: Gold and markets selling off – is a Trump victory ahead?

Could it be ‘déjà vu all over again’ for the Democrats.  In 2016 Hillary Clinton seemed to have a comfortable lead over Donald Trump in the U.S. Presidential election polls yet she lost out in the U.S. electoral college system.  Might the same thing happen again and confine Joe Biden to obscurity rather than the Presidency?

With both candidates in their 70s, this time around the choice of potential vice Presidents could well be the key here.   Both VP choices could be considered to be a heartbeat away from the Presidency, and while the prospect of a President Pence is indeed worrying, in America’s still racist and misogynistic society a President Harris could be a complete no-no.  With Joe Biden perceived to be the more frail of the two Presidential candidates the potential prospect of Kamala Harris becoming the nation’s first black female President might be too much for the majority of Americans to contemplate should Biden not see out the full four-year term if he is elected.  His choice of running mate, despite appealing to an important sector of the electorate, could end up being a case of ‘shooting himself in the foot’.

The past few days saw equity markets around the globe falling sharply – with Wall Street probably the biggest loser, although it did see a minor recovery yesterday.  But, contrary to expectations, ours included, precious metals also sold off sharply, while the dollar rose.  Given that a Biden victory would be expected to trigger a bigger massive economic stimulus package which would almost certainly boost gold and equities in the short term, and drive the dollar down a few notches, the direction of the markets might be seen as a sharp warning for those banking on a Biden victory as the polls and betting odds are currently predicting. 

This is accompanied by poll figures suggesting that the likelihood of Biden prevailing in many of the key ‘battleground states’ which will likely ultimately decide the direction of the Presidency is at risk with the outcomes too close to call.  And with a sector of the American populace loath to admit to pollsters that they may, in reality, favour a Trump win, despite some of his erratic decision making and the overall findings that his policies are driving America in the wrong direction, the polls could yet be wrong again.  Americans love a winner and Trump has proved himself to be a winner in the past.

So what does all this mean for precious metals and equities?  Both Republicans and Democrats will implement huge stimulus packages to try and get America back on its economic growth feet – or at least mitigate the ongoing effects of the coronavirus where U.S. infections look likely to reach 100,000 a day by next week and virus-related deaths are already over 1,000 a day.  Any such package will likely be too little too late.  A Trump victory could probably see the virus figures continue to rise alarmingly if he continues to downplay its effects in an attempt to boost thge economy.  A Democrat victory would likely see bigger stimulus measures in monetary terms, but accompanied by tighter restrictions imposed, but these may be insufficient to slow the virus advance through the winter months.  Either way, the U.S. faces enormous unemployment and a deepening recession.

So what does this mean for investment options?  We think gold will recover some of its lustre and maybe drag silver up with it, although not to the extent predicted by many out-and-out precious metals bulls.  Once the election is settled prices will recover – but given the possibility of a Trump victory in the Presidential stakes, but the Senate falling to the Democrats, nothing can be certain here!

A Democrat clean sweep, as the polls and betting odds are currently predicting, would probably mean a surge in  equities and in gold and silver prices, but we wouldn’t expect any equity surge to be maintained, although a precious metals one might well be.  The prospect of mandatory lockdowns and tax rises to help pay for the stimuli, could well dent any further equity price progress.  Gold and silver might move onwards and upwards, but slowly with occasional setbacks while we’d remain cautious about pgms – palladium in particular.  This latter metal is hugely reliant on its industrial usage in the automotive sector, but a Biden victory and a Democrat-controlled Senate, would likely boost environmental initiatives thus promoting a rise in electrically powered automobiles at the expense of palladium-based internal combustion engine exhaust control systems.  Of course a Trump victory would probably set back such potential measures and his position on tax rises is far from clear.

Either way we still see the gold price getting back over $2,000 – perhaps sooner rather than later – and then gradually rising to new heights.  Silver perhaps does not have such an easy path upwards, but will probably be dragged up by gold anyway and could well hit $30, but not until next year.  Pgms will probably also be dragged up by gold, despite our misgivings, but we would expect palladium to start declining over time as supply is boosted by rising Russian production and demand is gradually eroded by the rise in take-up of electric powered, or fuel cell powered vehicles, although such a pattern will be slow to materialise.

As I write, tghe gold price has been picking up a little in European trade, but the key is whether this can be replicated whne American markets open.  On the evidence of recent market activity this may not be the case.  I's been a rough few days for the gold aficionado!

30 Oct 2020 | Categories: Gold

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