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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Will Win US Presidential Election 2016

Commodities / Gold and Silver 2016 Nov 05, 2016 - 05:55 AM GMT

By: GoldCore

Commodities

  • Gold could rise to at least 8% following election
  • Trump victory will push gold up 10%
  • Uncertainty pre and post election likely to support the gold price
  • Election jitters are one of several drivers for the gold price
  • Trump win will release a ‘wave of risk aversion’
  • Safe-haven demand maybe set to rise in coming weeks

To the relief of some but the worry of many others the US election is now just days away. Unlike past elections this one appears to grown more uncertain and fraught the closer it gets.

Since the FBI announced further investigations into emails associated with Hillary Clinton, her lead has narrowed and voters appear to be even more undecided.

For some the decision is a fate worse than death, as Reuters reported, ‘Young Americans are so dissatisfied with their choices in this presidential election that nearly one in four told an opinion poll they would rather have a giant meteor destroy the Earth than see Donald Trump or Hillary Clinton in the White House.’

There appears to be one winner amongst all this though, gold. Regardless of who will enter the White House in January, the gold price is set to perform well in both the short and long-term.

Gold price to climb no matter who wins

The news of the gold price’s positive run surrounding the elections made headlines this week when HSBC analyst  James Steel published a note stating gold would climb 8% no matter who wins.

Backing this up the World Gold Council wrote yesterday, “We expect that both the presidential and congressional elections results will be supportive of gold regardless of the outcome, given the high uncertainty in the direction of policy and the possibility that the results may be contested.”

Clinton policies will drive gold upwards

Should Clinton win then for many this will be a relief and also a reason to carry-on as if little has happened. General consensus is that little will change with another Clinton in the White House. Unless the Democrats miraculously manage to take control of Congress, then get ready for another four years of stalemate.

According to Steel, this will still be bullish for gold, “Such an outcome would largely support our current expectations for gold. Our bullish base case, built on expectations of a low rate environment and recovering physical demand, is a forecast of USD1,400/oz by end-2016 with an average forecast price of USD1,275/oz. For 2017, we forecast gold at USD1,440/oz by year end with an average price forecast of USD1,310/oz. If Mrs. Clinton wins, we believe her trade policies in particular and shift to protectionism would reaffirm our already bullish outlook. If contrary to current poll indications the Democrats also take control of Congress, then there could be a more expansionary fiscal policy. This could have a more bullish impact on our 2017 forecasts.”

Not everyone is as bullish about gold should Clinton win, in the short-term. Jeff Nichols wrote earlier this week, ““My guess is that Wall Street and foreign stock markets would be relieved by a Clinton victory, with equity prices posting brief short-term gains, and gold giving up the small gains it registered in the days immediately prior to the election,” said Nichols”

Wayne Gordon, executive director for commodities and foreign exchange at UBS Group AG’s wealth-management unit, agreed, telling Bloomberg, “If Hillary Clinton is elected, we think gold can probably fall by $20, $30.”

Trump win means more uncertainty for us but certainty for gold

UBS’s Gordon sees a Trump win to be hugely beneficial to the gold price, “If Donald Trump is elected next week, we think gold can go anywhere shy of $1,400…So the clear skew in this trade is to the upside.”

When it comes to Trump this is where Steel sees a very positive environment for gold, “a Trump win would be decidedly gold-bullish, in our view, given the potential for increased protectionism, higher budget spending and geopolitical risks. Gold prices could jump to USD1,500/oz relatively quickly, and end the year at that level on a Trump win. This could raise our 2016 average price to USD1,300/oz. For 2017, gold could rise further to USD1,575/oz by year end with an average of USD1,410/oz.”

For the majority of those weighing in on gold-price moves over the election, it is the air of uncertainty that is creating a positive environment for gold.

A Trump win “would see likely see a wave of risk aversion,” said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. “Gold prices have already moved higher as a result of the U.S. presidential election becoming less clear. Assuming polls continue to tighten, gold prices should continue to edge higher.”

Only gold is learning from history

History has generally shown that when there is a change in the partisan affiliation of the presidency, the price of gold benefits. When there is no change in administration then gold tends not to react.

Meanwhile, some believe that gold’s reaction depends on which party is in the White House. Some research I carried out a few years ago found that gold generally performed better under a Democrat administration.

However history doesn’t appear to come into this election. The only thing that history is feeding into right now are the predictions on the gold price. We know from experience that gold performs well during times of uncertainty.

“Gold is seen as a hedge against political uncertainty, and President Trump would bring more political unpredictability than any president for generations, particularly over the U.S. Federal Reserve’s leadership and monetary policy strategy,” James Butterfill, head of research and investment strategy at ETF Securities, wrote in a recent note. Butterfly expects gold to climb by as much as 10% in the year proceeding a Trump victory.

Long-term, the gold price doesn’t care

At present the gold price is reacting to the uncertainty surrounding the election result, but long-term the outlook is also bullish. Ron Paul sees little difference between the two parties and sees a bullish environment, not matter what the outcome is on Tuesday.

We quoted Ron Paul, earlier this year who stated, “Politically speaking, there is going to be a lot more uncertainty and that may go into the markets … If people are depending on political stability to get the market going I don’t think it’s going to work out.”

“Nothing ever really changes regardless of which party wins. Governments keep growing, the deficits keep growing and the Fed keeps borrowing and printing more money,” he said. “I don’t expect a lot to change.”

Gold’s bright future is down to uncertainty and safe-haven demand in the short-term, but in the long-term this election will be a mere brick in the long-road, bullish road ahead.

7RealRisksBanner

Gold Prices (LBMA AM)

04 Nov: USD 1,301.70, GBP 1,042.79 & EUR 1,172.57 per ounce
03 Nov: USD 1,293.00, GBP 1,040.61 & EUR 1,165.90 per ounce
02 Nov: USD 1,295.85, GBP 1,056.51 & EUR 1,169.76 per ounce
01 Nov: USD 1,284.40, GBP 1,048.58 & EUR 1,167.52 per ounce
31 Oct: USD 1,274.20, GBP 1,046.25 & EUR 1,163.22 per ounce
28 Oct: USD 1,265.90, GBP 1,042.47 & EUR 1,160.96 per ounce
27 Oct: USD 1,269.30, GBP 1,038.29 & EUR 1,162.93 per ounce

Silver Prices (LBMA)

04 Nov: USD 18.30, GBP 14.65 & EUR 16.48 per ounce
03 Nov: USD 18.07, GBP 14.50 & EUR 16.32 per ounce
02 Nov: USD 18.54, GBP 15.05 & EUR 16.70 per ounce
01 Nov: USD 18.24, GBP 14.91 & EUR 16.54 per ounce
31 Oct: USD 17.76, GBP 14.59 & EUR 16.22 per ounce
28 Oct: USD 17.61, GBP 14.51 & EUR 16.13 per ounce
27 Oct: USD 17.66, GBP 14.41 & EUR 16.16 per ounce

This update can be found on the GoldCore blog here.

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