Super Tuesday And Gold

We know the results of Super Tuesday. What do they imply for the gold market?

Super Tuesday Results

Super Tuesday refers informally to primary elections and caucuses held in several states on Tuesday. During the 2016 election year, Super Tuesday was held on March 1, and it was a great time for Hillary Clinton and Donald Trump. The former won Alabama, Arkansas, Georgia, Massachusetts, Tennessee, Texas, and Virginia, while Bernie Sanders won Colorado, Minnesota, Oklahoma, and Vermont. Clinton won 486 delegates while Sanders won 321. This means that Clinton achieves a lead for the Democratic Presidential Nomination. The Republican primaries were a bit more interesting. Trump took Alabama, Arkansas, Georgia, Massachusetts, Tennessee, Vermont, and Virginia; while Ted Cruz won Alaska, Oklahoma, and Texas. Marco Rubio took Minnesota, while John Kasich and Ben Carson were left with nothing. The results imply that Trump strengthened his claim on the GOP nomination, while Rubio, Kasich, and Carson have practically no chance of winning the nomination. Actually, Carson decided to quit the GOP race after the results had been released.

Is It Time To Move To Canada?

After Super Tuesday, Google searches for “move to Canada” surged. Why? Well, the most probable scenario is that either Clinton or Trump will become the President of the United States. America is now between a rock and a hard place.

Trump wants to impose huge import tariffs, which would reduce the benefits of trade and make foreign goods more expensive, and limit immigration, which is an important source of economic vitality. Surely, he also proposes a pro-growth tax plan with significant tax cuts, however, it would increase the budget deficit, as Trump does not say anything how to reduce spending to finance tax cuts.

Trump’s rival for the presidency (if he gets the nomination) is likely to be Hillary Clinton. She wants to increase taxes on the wealthy and on investment (that are already too high), raise the minimum wage (that is already too high), bring back the labor unions, expand Social Security and ObamaCare, and increase public investment in infrastructure, education, and clean energy.

As one can see, it’s not an easy choice. Trump is a right-wing populist screaming that Chinese and immigrants take American jobs, which is nonsense, since immigrants do not substitute for, but rather complement, native workers, while the possibility to buy cheaper goods from abroad leaves more money in the consumers’ pockets, which can be spent to create jobs. On the other hand, Clinton takes a hardcore statist approach (but probably less hardcore than Sanders) to economic policies and will probably continue Obama’s stance. The problem is that America has tested the Left’s prescriptions in action for years and they simply have not been working, which partially explains why the recent economic recovery has been so sluggish.

Conclusions

Summing up, the 2016 presidential election should be supportive for gold. In general, most of the past recession occurred in either the first or last year of a presidential term. Moreover, markets dislike the uncertainty of an open election. There are a few new candidates, so it is difficult for the investors to assess the financial implications of the next administration. Additionally, the candidates likely to get nominations are a hardcore statist with hostile rhetoric on capitalism and a right-wing populist who wants to build a wall along the Mexican border and bring China to heel, which raises the possibility of greater economic nationalism and currency wars after the election. This is why gold may be another big winner after Super Tuesday. The uncertainty regarding the U.S. election should be negative for the U.S. dollar and positive for the yellow metal.

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.