Trump: a second term?

Even in a year characterised by unprecedented global upheaval politically, socially and economically, the US elections may well be the biggest political event of the year for investors.

Leading up to the election

With less than three months to go, the polls suggest a Biden victory.

Alan Lichtman is famous for accurately forecasting the victor of every presidential race since 1984 and he doesn’t look to the polls when making his predictions. His Big Picture view encompasses the economy, incumbency, scandal, social unrest and even the candidates’ charisma. Lichtman predicts that come November, Trump will leave the White House. He certainly has had a presidency marred by scandal, social unrest and economic crisis.

According to Maria Paola Toschi, ‘since 1932, an incumbent US president has never failed to win re-election unless a recession has occurred during their time in office.’

In fact, around 75% of incumbent presidents have been re-elected.

A Trump win?

 A Republican Party presidential win typically signals an upswing in the markets as republican policies are seen to be more market friendly.

Before February 2020, it looked as if Trump could keep his hold on the White House for a second term. But, his handling of the COVID-19 pandemic, the resultant economic nose-dive as well as sweeping social protests suggest that his days in the White House might be numbered.

In 2016 Trump’s surprise win pushed cautious investors to gold with 5% increases in the price. In the scenario of a win in 2020, gold could well likely once again provide a safe-haven for investors in what would likely be a second term characterised by volatility.

Biden victorious?

 Trumps presidency has been characterised by individual and corporate tax cuts and the deregulating of the energy and financial sectors. Trump in the White House has been good for Wall Street, until COVID-19 struck, at any rate. His replacement by Biden would likely create an initial dip in the market and a potentially a high point for gold as Biden’s policies include reversing corporate and personal tax cuts.

At the time of writing Biden had a polling margin of 7.7% over President Trump.

A contested election

Usually it’s American voters who will decide the outcome of an election. But in 2020, even that is not certain. Since the early days of Trump’s presidency, he has hinted that the elections might have been rigged against him. Recently he suggested a move to delay the elections on Twitter:

“With Universal Mail-In voting (not Absentee Voting, which is good), 2020 will be the most INACCURATE & FRAUDULENT Election in history. It will be a great embarrassment to the USA. Delay the Election until people can properly, securely and safely vote???”, tweeted the President.

An outcome marred by multiple recounts is also plausible. Technology could also be a factor impeding a clear outcome (who could forget the hanging chads of the Bush-Gore race?).

Any periods of uncertainty around who holds the White House will make for skittish investors looking for an escape from uncertainly and a safe-haven for their investments. They may well find it in gold.

The impact of volatility and uncertainty on investors

Gold has been just such a safe haven for investors for millennia. Historically, market volatility increases in election years as the markets try to reprice the probability of the new administration’s policies. Typically, gold becomes more attractive to investors whilst these market adjustments play out.

Earlier this year the US elections and ongoing trade tensions between China and the US suggested a buoyant gold price was on the cards in 2020. Then came the pandemic. All this in a year when gold supply and demand are well placed to support high prices. And some analysts correctly predicted record highs.

In January gold prices were predicted to be around the $1600 mark in 2020. But gold prices are at their highest level ever at over $2000 (at the time of writing). With a number of factors supporting gold, some say $4000 is a possibility. Other factors supporting this prediction include the US’s printing trillions of dollars at zero-interest rates as part of a COVID-19 economic stimulus package. In this scenario gold is an extremely attractive asset.

In the volatile few months leading up to the election investors will likely look to gold as a safe-haven. And a Trump loss could have gold soaring well above the $2000 mark.

2020 has already been a year where the unthinkable has happened and it’s impossible to predict what will happen next. It is likely that protracted periods of uncertainty will make investing conditions hostile to many. But, when it comes to these particular elections, investors may decide that Gold is the candidate to back.

Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.