LAWRIE WILLIAMS: Gold and the U.S. Presidency
Well the televised debates are over and while neither President Trump nor former Vice president Biden managed to land any telling blows, looking from afar we would reckon the debates went slightly in Biden’s favour. A major focus of Trump’s anti-Biden campaign had been the implication that the 78-year old former vice-President was suffering from the early stages of dementia and would thus not be able to stand up to his opponent in a face-to-face confrontation, nor perform the Presidency duties for a full term. This does not appear to have been the reality as far as the debates were concerned, so in effect any outcome that did not see Biden overwhelmed by his more-aggressive rival has to be, in our view, a Biden positive.
We thus see the most likely outcome of the November 3rd election as being a Biden victory, although nothing is certain yet and there are certainly those who are predicting a different outcome. It may all depend on who gets the vote out on the day, although many Americans have already cast their votes. The sitting President certainly has his share of hugely committed supporters, but there is a large anyone-but--Trump movement, including some Republicans, to add to the committed Democrat supporters, who may sway the final count Biden’s way. Certainly Biden is leading in the polls, but then so was Hillary Clinton in the last Presidential election, but she still lost out in the electoral college system despite an overall national vote total that was higher than that recorded by Donald Trump.
At the last U.S. Presidential election we were proved right in our view that one should not write off Trump despite Clinton’s apparent poll lead, and we issue the same warning this time around too. We could see the trends in the key battleground states, which would ultimately decide the Presidency, were far from being sure-fire Clinton shoe-ins and Trump eventually proved victorious in most of these ushering in what proved to be one of the most divisive Presidential terms of office the U.S. has ever seen. These divisions seem to have appealed to the fanatical part of the Trump support element, but we think that the U.S. will vote for the more moderate Biden this time around rather than for four more years of lawmaking by tweet and Trump-style confrontational rhetoric. The worrying, for Americans, far left wing element of the Democratic party will likely be kept in check in the Senate and the House of Representatives and ‘socialism’, which is a hugely scary word in the eyes of many Americans, and of Republican voters in particular, will be downplayed for the foreseeable future. However, the comparative poll figures in the battleground states again this time are hugely mixed, with the likelihood that Trump will yet prevail in some key ones, so the final result may yet be in the balance.
We had thought that the continuing uncertainty about who would be ensconced in the White House from early next year would be gold price positive, but so far this has not been the case. Gold keeps on being brought down to the $1,900 level, or marginally below it, but also keeps bouncing back by a relatively small amount, so the overall trend is fairly flat. Historically U.S. Presidential elections have not tended to be particularly gold price positive, but we had thought the seeming wide divergence in political ideologies between Trump and his supporters and Biden and the Democrat supporters might make this time a little different.
Overhanging the Presidential race is the prospect of a new COVID-related economic stimulus package which, if it can be agreed, would probably benefit both gold and equities, weaken the dollar and, in the longer term, lead to a rise in inflation – also seen as perhaps gold positive. Whoever wins, such a bi-partisan economic stimulus package will be almost inevitable – the only real question is the timing thereof. Will it come before the election as many believe, or after? Timing is of the essence here as any delays could be disastrous for millions of currently unemployed Americans exacerbated by the virus impact on small businesses.
The latest infection and death figures for the U.S. have to be disturbing for Trump given he has continually downplayed the virus impact amid repeating his claims that it will just fade away. Yes it will, but perhaps not for many months, or even years, yet. But then Trump has always been determined to try and regenerate the American economy, which is made hugely difficult by continuing virus lockdowns. This effort will, no doubt, appeal to some of his potential followers. The health vs economy impact balancing act is one that governments around the world are trying to get a grip on with mostly unsuccessful results. The U.S. is no different in this respect.
Meanwhile gold’s performance has been pretty lacklustre since it hit its highs of over $2,060 in early August as it probably then rose too far too fast. It was brought back down to the $1,850s in latish September before recovering a little, since when it has tended to move above and below the $1,900 level somewhat dependent on the vagaries of U.S. economic news. On Friday, alongside somewhat better PMI levels it fell back, or was brought down a little below $1,900 again before being allowed to close the week marginally above it.
So where will it go from here? Sentiment may shift a little depending on the various opinion polls which may, or may not, predict one of the major Presidential election candidates winning the contest. But on recent performance, and past history, gold will most likely maintain the current status quo. The one agenda item that could shift the price one way or the other would be the passage of a stimulus bill – perhaps next week. New stimulus would likely be negative for the dollar index, but positive for gold and equities, while if no agreement on this can be reached between Republicans and Democrats, the reverse may happen. We still think there’s a chance that the gold price could see the $2,000 level again before the year end, but only if a stimulus bill comes about, and we accept that time is running out.
Somewhat surprisingly gold could actually benefit whoever wins the Presidential contest as either a Republican or Democrat administration is likely to see a stimulus package through, even though their overall pandemic policies would likely differ. The U.S. needs some certainty over its economic direction and at least this should come about in some form or another once the election decision becomes apparent.
24 Oct 2020