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LAWRIE WILLIAMS: Hillary Trumped – what now for Gold?

For the second time in four months I’ve woken up in the morning to a hugely unexpected political vote outcome.  First there was the Brexit referendum where the result confounded the opinion polls and now there is the U.S. Presidential election where the polls strongly predicted a comfortable victory for Hillary Clinton, but were overturned in reality by a definitely unanticipated victory for Donald Trump.  Market reaction was negative with all major stock indices turning downwards sharply.  Initially the gold price soared to the high $1,330s led by the Shanghai afternoon ‘fix’ as a Trump victory looked to be on the cards but once the Trump victory was assured, gold was somewhat unexpectedly marked down in Europe to comfortably below the $1,300 level.  At the time of writing it’s back in the $1,270s!

In reality I should not have been overly surprised by either the Brexit vote, or the Trump victory as I had cautioned against the possibility of both occurring.  Regardiing  Brexit I was conscious of a strong underswell of anti-EU feeling and worries about uncontrolled immigration from EU states now that the European comnglomeration had been expanded to incorporate a number of poorer European nations bringing together an unholy alliance of the working class, worried about job security and pressure on education and health facilities which might result from unfettered immigrant inflows, and the right wing establishment, more worried about loss of sovereignty to overriding EU institutions and legislation.  I thus suggested the British investors should buy gold as insurance against a possible Brexit vote.  Those who did so were, in the event, well rewarded, at least in pound sterling terms.

As for the U.S. Presidential election I also suggested that a Clinton victory was not a foregone conclusion.  At the time I analysed the projected voting breakdowns for all the states as they appeared to be trending at the time and concluded that at that time, and with the data I had, it would only take one state with a signifcant electoral college vote – notably Florida – to be captured by Trump to swing the final result in his direction.  In the event, of course, Trump not only won Florida, but a number of other battleground states as well.

So what of gold?  The big surge once it became clear that Trump was likely to win given his assumed unpredictability, was hardly unexpected.  But the yellow metal’s subsequent $60 drop back will have been a surprise.  Maybe it was a case of the big money, which is capable of manipulating the futures markets, having too much to lose from a significantly higher gold price. A guide to what happens next may come from Shanghai overnight with its price settings.  Most of the world sees Trump as a potentially loose cannon and uncertainty so engendered should be gold positive.  We thus see some volatility in precious metals prices ahead, but as a physical gold market we suspect that Shanghai will ultimately call the tune relegating the COMEX gold futures market and the London markets to subsidiary roles although this may yet take some time to play out.

09 Nov 2016 | Categories: Gold

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