LAWRIE WILLIAMS: Gold: as US Political impasse goes on and on and on

There may well be no solution as yet to the eventual outcome of the U.S. Presidential election.  It strikes us here on the other side of the Atlantic that the political battle now under way is hugely demeaning to the U.S. and its political system.  President Trump continues to insist there are numerous cases of electoral fraud and refuses to concede, meanwhile seeming President-elect Joe Biden continues to appoint his proposed White House and governmental team, but without, so far, the financial support that a transitional President-elect would normally receive.  Meanwhile the gold price is marking time in lieu of some kind of final outcome.

But what happens when the arguments are settled with either Biden being confirmed as the new President, or the perhaps long-shot of Trump gaining another four years in office?  If the former, and seemingly most likely, outcome occurs just over half the U.S. population will be ecstatic and most of the rest of the world will breathe a sigh of relief.  Gold may slip back initially with such a solution, but given that a Democrat President will be more likely to pump more stimulus into the U.S. economy, in the medium to long term gold will likely benefit and continue on its upwards path.

If President Trump prevails then perhaps the opposite will occur – at least initially – as the world girds itself for another 4 years of a somewhat erratic Presidency – at least as far as foreign policy is concerned.  It will give Trump a sense of invincibility and bring the likelihood of military intervention in Iran, and perhaps elsewhere, to the fore.  Just under half the American populace will be ecstatic that their hero wins out as he has suggested.  Gold may well then rise given a further Trump term will fuel global uncertainty – but then its performance may well depend on the implementation of whatever policies he tweets next. 

Certainly, if Trump prevails, global efforts to allay climate change will be set back and sectors of the U.S. oil industry will see benefits.  But the impact of the COVID-19 coronavirus, which is currently affecting the U.S. more than anywhere in the world will likely continue to accelerate into 2021 – any vaccine roll out, if it occurs, is unlikely to affect the virus growth among the population until several months into the new year at the very least.  Currently total coronavirus infections in the U.S. are over 11.5 million and virus-related deaths over 250,000 with the former rising at over 150,000 a day and the latter often exceeding well over 1,000 in a day.  According to the worldometers.info website, which keeps a global tally of coronavirus figure, there were over 157,000 new U.S. cases reported yesterday and over 1,600 deaths!

From afar this latter outcome of a continuing Trump Presidency is, to say the least, disturbing.  Many consider that the prospect of Trump at the helm of the world’s currently most powerful nation is more than worrying.  He has proven in his actions, both foreign and domestic, to be both erratic and vindictive, while his approach to propaganda seems akin to that of Nazi Germany’s Joseph Goebbells.  If you repeat something often enough a sector of the populace will believe it however false the statement may be.  However I have to be cynical about the general media coverage of the election challenges.  Most commentators have a political axe to grind or follow the dictates of the medium they write or broadcast for.  This doesn’t just apply to U.S. election coverage, but across the board.  Such is life nowadays.

Regarding the Trump media coverage, it should also be remembered that much of the world started off decrying an earlier Republican President with strong views in Ronald Reagan, but in retrospect he will probably go down in history as one of the best-ever U.S. Presidents, although the current Republican hierarchy would probably consider him far too left of centre for their taste!  And Trump is no Reagan!

So we look upon either a continuation of a Donald Trump Presidency, or the accession of Joe Biden to this exalted position, as either, or both, being medium to long term positive for gold.  To perhaps set against this we hear today the Warren Buffett’s Berkshire Hathaway has reduced its position in gold miner Barrick Gold to 12 million shares – presumably at a good profit - but that mega-investor Stan Druckenmiller, as we understand it, has major holdings in Barrick and gold mining ETF GDX, as well as a huge position in the biggest gold ETF of all, GLD. Notably Berkshire Hathaway appears not to have sold anywhere near its whole holding in Barrick, but is using some of its disposals to build stakes in the U.S. pharmaceutical sector, which we see as a wise investment choice in the current environment.

So we do see both positives and negatives for gold and those other precious metals which tend to follow gold’s lead, but we also see the positive outweighing the negative in the medium to long term.  That is not a forecast that there will be no serious falls in the short term.  Gold has cratered to the $1,870s as I write for instance, but overall we see the yellow metal continuing to rise in the months and year ahead.  It is too early to make any predictions beyond 2021.  Just keep following the advice out there, although we still would tend to ignore those calling for a rapid rise to $5 or$10 thousand as being unrealistic unless there’s a global move to completely revalue gold – which we see as unlikely.

18 Nov 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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