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LAWRIE WILLIAMS: U.S. election and economy will dominate gold price path

A few days ago we suggested that the gold price had won the battle to stay above the $1,900 level. But a rearguard action took it back down again to the $1,890s, albeit for an initially relatively shortlived fall, with a rise in the dollar index against the recent trend being accredited with the responsibility for  the gold price weakness.  However, on Thursday, gold bounced back up through the $1,900 barrier yet again despite continuing dollar strength but ended the week back marginally below the $1,900 level after a late-Friday take-down.

Such price hiatuses are probably inevitable in what is still a gold bull market and the more cautious gold observers see this as a positive sign of price consolidation.  If gold can comfortably regain its plus $1,900 level in the days ahead, we will stay with our forecast of it being able to retake the $2,000 level before the year-end.

What should be of particular interest for gold investors who are following the gold stock route is the preliminary Q3 financial report from the world’s second largest gold miner by production.  Barrick Gold reported an average gold price received during Q3 of a little over $1,900 an ounce – around double its cost of production.  It also saw most of its unit cost figures falling a little too.  This should lead to a very healthy Q3 profit figure when this is announced early next month and may even indicate the possibility of a further dividend increase – an additional bonus for gold stock investors in the dividend paying gold stocks.  If similar figures are forthcoming from other major gold producers, which will probably be the case, then gold stock investors should be in for a very positive short term  future:  See my recent article on Seeking Alpha - Invest In Dividend Paying Gold Stocks For Best Returnsfor some relevant investment options in dividend-paying gold stocks.  With the likelihood of the gold price remaining above $1,900 through Q4, and the possibility of even higher levels, the gold producing companies should be in for a very positive profitability period.  We are already seeing dividend increases virtually across the board here and these should continue along with a rising gold price.  At $1,900 gold these gold miners are doing really well.

Budding mid-tier gold miner B2Gold has also just reported very strong Q3 earnings, enabling it to pay off its debt and as a dividend payer has also just doubled its quarterly payout to 4 cents a share and is on target to produce its gold output guidance of between 1 million and 1.055 million ounces this year.  We anticipate similarly positive Q3 announcements from most, if not all  gold producers as other Q3 results are published.

However the cautious investor may prefer to avoid the risk element which is always a factor in gold mining stocks and stick with gold bullion and gold ETFs.  If the gold price does continue to rise into the year-end, and for the foreseeable future, these should continue to do well in capital appreciation terms, although of course both lack the added dividend payment element.  Interest rates remain low to negative, which negates the argument that gold is a poor investment because it pays no interest, and this has helped contribute to gold’s recent strength.

The U.S. Presidential election date draws ever closer – it is only 3 weeks away – but although Joe Biden seems to be well ahead in the polls both nationally, and in most of the battleground states, this does not preclude a Donald Trump victory on November 3rd.  The election rhetoric seems to be getting nastier by the day, particularly from the Republican side, and if some of the mud sticks then this could impact the final result.  The lack of certainty over the final result, and the broad difference in potential policies between a Republican administration and a Democrat one, is likely to positively impact the gold price right up to election day – and possibly beyond - whoever wins.  Gold always seems to thrive on uncertainty and we suspect investors of both political hues may turn to gold as a safe haven to protect their own vested interests in case the final result goes against them.

Meanwhile the coronavirus statistics have to be creating huge cause for concern, in the Americas and also in Europe, as a second wave appears to be already in progress as we head towards the northern winter months.  The U.S. alone seems to be heading back through the 70,000 a day level for new infections and near 1,000 deaths a day with an overall death toll heading for around 225,000 this weekend – and rising.  How these statistics will affect the election remains unclear, but may leave the population worried about how the progress of the virus is being handled.  Whoever is in power tends to be ‘damned if they do and damned if they don’t’ with respect to virus control measures as they try to find a balance between health and damage to the economy, although this isn’t a specifically American problem!

In Europe figures are even worse than in the U.S. with the latest figures suggesting over 150,000 cases and 1,350 deaths.  However Europe (particularly if we include Russia as we do in the above statistics) has a larger population than the U.S. so the disparity in the figures is in line with North American figures.  However it is probably the U.S. figures leading up to the November 3rd election day which will be the main gold price driver as they could well have an effect on the final outcome.. 

And it may not end there.  President Trump, if he loses on the day, has intimated he may challenge the result in the courts – a virtually unprecedented move – perhaps even prolonging the uncertainty.  If this happens the gold price could really soar.  Roll on November 3rd and let’s see what happens.

17 Oct 2020 | Categories: Gold

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