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Trading Any Market

Uncertain US Election Outcome and Uncertainty After Bodes Well For Gold

Commodities / Gold and Silver 2016 Nov 08, 2016 - 03:52 PM GMT

By: GoldCore

Commodities

  • Polls suggest Clinton to win but as with Brexit is chance of surprise
  • PredictWise gives Clinton an 89% chance of becoming President-elect, giving just Trump just an 11% chance.
  • Gold price may move about 1.8% to 4% if result is uncertain
  • Demand for gold and silver is up this week by a factor of 25 percent
  • Sales of American Eagle gold coins have climbed 23%
  • Gold to benefit from ‘Punch and Judy’ election

Latest Punch and Judy U.S. Election – Image from Wikipedia

A lot of us were looking forward to today, it signals the last day of election-mania and we might all be able to get on with our lives, whatever that means under whoever wins.

The problem is, today might not be the last day of uncertainty. Trump has already said that he will keep us in suspense as to whether or not he will accept a Clinton win, this has been followed by many cries of ‘rigged’ from both Trump and his cohort. The other factor is that the election might be so close that it is too close to call and we see another Bush-Gore debacle.

Should there be an unclear winner tomorrow, or if Trump wins, then what will this mean for gold?

Is there still expected to be an uncertain outcome?

The most obvious answer is that this will be good for the gold price. As we have seen in the month of October, gold thrives in an uncertain environment. Yesterday, it dropped seemingly on the news that the FBI had dropped the investigation into Hilary Clinton and, therefore, some assumed this meant she was once again the likely winner and putting rest to uncertainty.

However, the polls are still extremely close whilst the betting markets suggest otherwise.

Yesterday, PredictWise gave Clinton an 89% chance of becoming President-elect, giving just Trump just an 11% chance. Yet in a Wall Street Journal/NBC News Poll results showed “44% of likely voters support Clinton, while 40% support Trump,” showing Clinton’s lead to have fallen by over 60%.

Much of the fall in Clinton’s ratings are down to Trump gaining support amongst his own party, rather than Clinton losing votes, this puts him on a closer par with the Democrats’ support for their candidate.

The increasing popularity of Trump may well make this a tight election, and one that may not serve an outcome straight away, or a satisfactory one for one particular candidate.

It is worth remembering how badly wrong the polls, pundits and markets were regarding the Brexit vote.

Uncertainty – how much of a boost for the gold price?

Joseph Innace of S&P Global Platts, spoke to MarketWatch yesterday, and outlined how a contested or uncertain election will impact the gold price.

Looking back at the 40-day Bush Gore ‘battle,’ Innace finds that surprisingly the gold price did not move at the extent many expected, “about 1.8% to 4% depending on what date is chosen as the end of the time frame.”

On election day Nov. 7, 2000, gold settled little changed at roughly $264.30 an ounce on Comex and later that night, Gore was projected to be the winner, recalled Innace.

The next day, Bush looked to be the winner, and gold prices edged up. But with a narrow lead of less than couple of thousands votes in Florida, a recount was called. A complicated legal battle ensued, effectively ending with a controversial Supreme Court decision on Dec. 12. In televised speeches on Dec. 13, Gore conceded and Bush accepted the presidency.

Innace said that gold prices moved “steadily but modestly higher” from Dec. 14, the day after Bush’s acceptance speech, to Dec. 27, when it reached a peak for the period of $275.20 an ounce.

So throughout that time frame, the change from Nov. 7 to the peak on Dec. 27 was just 4.1%, said Innace.

The gain is even smaller if you compare the Nov. 7 settlement to the $269 an ounce gold ended at the day after Bush’s speech. That’s a difference of roughly 1.8%, Innace said.

Short-term we may not see much of a spike in the price of gold, however the idea of either candidate winning is enough to see a long-term climb in the gold price, as we reported on Friday.

This has been enough to drive up gold demand in the US, ahead of time.

Gold rose in the 8 years of the Bush Presidency and we expect similar gains for gold in the four years of the next U.S. President.

Uncertainty has boosted gold demand

Yesterday Reuters reported that US dealers have reported a jump in sales, ahead of the US election and the expected rate rise in December.

Investors have been actively buying gold and silver all year through exchange-traded funds (ETFs).

Holdings of the eight gold ETFs followed by Reuters reached the highest in more than three years late last month, while the holdings of the six silver ETFs tracked by Reuters reached a record high at the end of October.

“Demand (for gold and silver) is up this week by a factor of 25 percent across the board from where it was last week,” said Roy Friedman, president of New York-based Manfra, Tordella& Brookes, on Friday.

“The increase in demand … stretches from private investors through institutional investors coming to us looking for gold and silver.”

At the US Mint, sales of American Eagle gold coins have climbed 23% in the month of October, and silver coins more than doubled. The chart above, courtesy of Frank Holmes, shows that gold-coin sales are at their highest since January.

Gold – the only winner?

As we outlined last week, the price of gold has been predicted to benefit from this election no matter the outcome, by a number of analysts. It may be 1% in the coming weeks, or it may shoot to $1,850, depending on which reports you read.

Either way, the uncertainty that either candidate, or a stalemate election will bring will see an increase in safe haven investment demand for gold. However, it is important (as impossible as it may now seem) to look beyond  the US election, and instead the wider, global environment.

Post-US election, we will still be in a world that is witnessing turmoil spreading from the Middle East and up towards Europe. That same world is experiencing considerable uncertainty in regard to the gigantic monetary experiment of ZIRP and NIRP, the poor health of the financial system and a slump in oil prices. Meanwhile voter sentiment regarding immigrants, free trade and closed borders is rapidly becoming the zeitgeist.

A climb in gold investment numbers, through ETFs, coins and physical bars suggests that more investors are no longer concerned about, the increasingly lower, opportunity cost of holding gold. Instead they are realising that the uncertainty we feel is not in regard to the US election, but how much the uncertainty in the world will remain no matter which titular figure wins this latest ‘punch and judy show’.

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Gold Prices (LBMA AM)

08 Nov: USD 1,284.00, GBP 1,034.26 & EUR 1,162.02 per ounce
07 Nov: USD 1,286.80, GBP 1,036.13 & EUR 1,162.50 per ounce
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

Silver Prices (LBMA)

08 Nov: USD 18.26, GBP 14.72 & EUR 16.54 per ounce
07 Nov: USD 18.22, GBP 14.67 & EUR 16.47 per ounce
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

This update can be found on the GoldCore blog here.

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