By Neils Christensen of Kitco News
Thursday November 03, 2016 12:46
(Kitco News) - With the Federal Reserve on hold until at least December, markets are now squarely focused on next week’s U.S. presidential and congressional elections, which according to many analysts, will bode well for gold.
In four days, U.S. citizens will head to the polls to elect a new President and over the past week, Republican candidate Donald Trump has been gaining solid ground against Democratic candidate Hillary Clinton, who has been the frontrunner since July.
Analysts have noted that safe-haven demand for gold has picked up this week, in correlation to Trump’s rising polls numbers. Wednesday, because of growing uncertainty ahead of the election, December gold futures hit a one-month high, breaching $1,300 an ounce.
Although gold has come off its highs, prices continue to hold around its key psychological level and analysts are expecting to see further gains next week no matter who becomes the next leader of the U.S.
“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,” said analysts at the World Gold Council in a report published Thursday.
Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital, agreed that gold has more potential in the long run, regardless of whether Trump or Clinton is in the oval office.
However, in the short-term, he added that the precious metal has more to gain with a Trump victory compared to a Clinton win.
“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. “On the other hand, Donald Trump is viewed as an unpredictable candidate whose policy proposals may be perceived as arbitrary and capricious.
His tough, protectionist, anti-trade stance could trigger selling on Wall Street and equity markets around the world – pushing the global economy into recession, undermining the dollar, and boosting safe-haven demand for gold.”
Julian Jessop, head of commodity research at Capital Economics, said that he is also expecting to see strong safe-haven demand for gold if Trump wins.
“Whatever one’s personal views of the relative merits of Donald Trump and Hillary Clinton as President of the US, there can be little doubt that global business and investor confidence would suffer in the wake of a Trump win (or even a disputed victory for Mrs. Clinton). This is clear from the heightened nervousness in the markets as opinion polls have suggested that Trump has a much better chance of victory than looked likely a few weeks ago,” he said in a recent report.
To gauge gold’s reaction, Jessop said that investors can use the Brexit vote as a template. The surprise results of the Brexit referendum pushed gold prices up 5%; however, he added that the Brexit gains were also quick to unwind.
“Just as with the Brexit vote, little would change straightaway. Trump would not actually become President until January. And even then, he may struggle to get his agenda through a gridlocked Congress. The US President has only limited power over domestic policy,” he said.
So far, one of the firms most bullish on a Trump victory is Thomson Reuters GFMS. In a report published last week, the research firm said that it could see gold push to at least $1,400 an ounce if Trump wins.