Gold Price Reaction One Week Before US Presidential Election

There is (fortunately) only one week left before the US presidential election. What are the current odds of both candidates and what do they mean for the gold market?

Current Odds Of Presidential Candidates

According to RealClear Politics, 47.3 percent of voters are in favor of Hillary Clinton, about 5 percentage points more than in favor of Donald Trump. It’s a great advantage, but it narrowed from 7 percentage points one week before. Perhaps, the melting lead resulted from new leaked e-mails released by Wikileaks about the Clinton Foundation and other issues inconvenient for Hillary Clinton. Anyway, she still leads the race with an advantage suggesting a comfortable victory. At least, if somebody fully trusts the polls. In the case of Brexit, they failed, so we cannot preclude anything.

Who Would Be Best For Gold?

The consensus is that Trump’s victory could be better for the gold market, as there is more uncertainty associated with him. Hillary would continue the status quo, while Trump is the Joker, a big question mark. Moreover, as a real estate developer, he would probably boost investment spending, which could deteriorate the fiscal situation of the country. Not to mention the protectionist policies he could implement. On the other hand, Trump could try to introduce some changes in the organization of the Fed or replace Yellen as Fed President by someone more hawkish, which could be negative for the gold market. And Clinton could not be so bad for the yellow metal in the long run. Investors should remember that her State Department created complete chaos in the Middle East. Geopolitical instability supports gold, although its impact on the precious metals market is often overstated. Like the election itself. More and more analysts point out that no matter who wins, the next President is likely to face another recession, which should be positive for gold.

GDP And Gold

Although the U.S. economy disappoints in many respects, real GDP increased 2.9 percent in the third quarter of 2016, according to the Bureau of Economic Analysis. That is a great improvement from the first half of the year when the U.S. economy rose just over 1 percent. Actually, it was the fastest pace in two years and it beat the expectations. This is not great news for the gold market, as such acceleration in growth will strengthen the camp of hawks within the Fed who want to see interest rate hikes soon. Indeed, the price of gold declined in the aftermath of the report. However, it quickly rebounded and even jumped above $1,272, while the market odds of a Fed hike in December decreased from 78.3 to 74.2 percent. The reason may be the fact that growth in consumer spending decelerated from 4.3 percent in the spring to 2.1 percent in the third quarter. In other words, the details of the report were not so strong as the headline, as the driving force behind the improved performance was a 10 percent spike in exports.

Conclusions

Summing up, Hillary Clinton is still the leader of the race, but her advantage over her rival declined again. However, with only one week before the election, it is likely that her advantage persists. We believe that polls should be taken with a pinch of salt, especially that key swing states will decide about the outcome, not the national polls. The uncertainty about the elections may be the factor which supports the price of gold now. The yellow metal shows surprising resilience, as even better-than-expected real GDP growth in the third quarter of 2016 did not send it south. However, the stock market may revive after the election (investors are now waiting, abstaining from important investments) and markets could focus on the December Fed meeting (especially if the Fed signals a hike in November meeting), which should be negative for the price of gold.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.