As markets wait for the result of the US presidential election gold has oscillated somewhat, though not as much as other asset classes, which remain far more volatile in such events as usual.
While at the time of writing it looks that Biden has a slightly higher chance of victory uncertainty is still high. What is certain however, is that the much-touted Democratic Party Blue Wave did not come. Yet again, polls and media experts totally underestimated the Trump vote. With some results not due for another day or even longer, and the statement of the US President claiming he is going to go to the Supreme Court amid his allegations of voter fraud, this process could take longer to work out.
It is clear that much of what many commentators saw as a “one-off” or a “blip” in 2016, of nationalism and the rejection of progressive politics, was not a blip. Republicans scored better than expected in minority votes and the age-old “Democrats will always win long-term because of demographics” needs to be re-assed.
What does this mean for Gold?
With a Biden presidency and a split Congress there may a lot more congestion and slowdown in the speed of policy making. In addition, with one eye on the 2022 mid-terms and of course the presidential election 2024 Biden will be careful not to antagonise swing votes who voted Republican this time. Biden was meant to deliver a landslide. And in that at least, he has failed. Therefore any extreme, or revolutionary left-wing policies will be unlikely to be pursued. Not a great deal will change. As the Who once sung “meet the new boss, same as the old boss”.
While it won’t be exactly the same, the lack of a Blue Wave handcuffs Biden slightly. The key arguments will remain the same and the policy prescriptions will be similar as to what Trump would have enacted. There will be stimulus, the Federal Reserve will continue to have easy monetary policy, with Jerome Powell at its head, with perhaps slightly higher taxes and only a slightly bigger infrastructure spend.
For gold, this should remain supportive. The status quo remains and the overall policy orthodoxy does not change much. Perhaps there will be a slight easing of tensions with China, but Trump shifted that debate firmly in the last four years and it would make no sense for Biden to return to the politics of engagement of the late 1990s. Thus, geopolitically not a great deal has changed for the bull case for gold.
Fiscally for the US, with a Republican senate, the hope for a huge green infrastructure deal and significantly more borrowing also fade. In isolation, this could help strengthen the US Dollar which may put pressure on gold in the short-term.
So as things stand it looks like a small Biden win with Congress controlled as per before (House: Democrats, Senate: Republicans).
In other news there was significant China news which went a little under the radar amidst all the election talk. What was meant to be one of the largest ever IPOs, if not the largest ever, ANT Group, was pulled suddenly and unexpectedly from both Shanghai and Hong Kong exchanges. The given reason by the authorities was that ANT Group “might not meet listing conditions or disclosure requirements”. But many suspect in reality that this was Beijing flexing its muscles over Jack Ma’s speech a few weeks prior which was construed to criticism some Chinese banking practices:
Whatever the reason, this hardly reflects well on Beijing’s ambitions to become a central and reliable pillar of the global financial system. Seemingly, on a whim, what should have been a demonstration of Chinese ingenuity and innovation has become another exercise in CCP politics. China just does not have the reputation for transparency and rule of law that is required to achieve its dream of becoming the dominant global power this century.
One significant policy difference between Biden and Trump is the COVID-19 response. A Biden presidency would be far more willing to pull the trigger on more national lockdowns. As seen in Europe, this is always denied until it happens, and a potential vaccine early in 2021 may make this a moot point. However, If Biden becomes president in January with COVID-19 still as rampant as it is today then national lockdowns will become almost inevitable, further hurting the economy, and creating more demands for stimulus and borrowing that should depreciate the US Dollar and therefore be supportive of gold.
Yet this is a long way off. As the world waits for results to come in, it will be interesting and crucial to see whether, and to what extent the Republicans challenge the vote count, if they lose the presidential race. If they go full throttle expect weeks or even months of delay. In 2000, during Bush II v Gore, it was 37 days until the result was known. Any similar occurrence could cause havoc in markets and create a flight to safe havens like gold. Of course, there are 6 states still to declare and so the uncertainty will continue for at least a day or two. How strange the country that has given the world so much innovation takes so long to count its votes.
And with the latest tweet from Trump expect this to run and run with a high probability of ending up at the Supreme Court:
“Last night I was leading, often solidly, in many key States, in almost all instances Democrat run & controlled. Then, one by one, they started to magically disappear as surprise ballot dumps were counted. VERY STRANGE, and the “pollsters” got it completely & historically wrong!”
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.