This is highly likely to be a big week for the markets and Gold. Why? Because we are now into the week of the U.S. Presidential Election. Next Tuesday 8th is Election Day but the results will probably not be announced until the early hours of Wednesday. So, we may know for next week’s blog or the result may come in just after, due to time differences.
However, this is the last chance to fully examine what this monumental event might mean for financial markets. Being quintessentially British, I have found the U.S. campaign mind-blowing in its lack of policy. To my mind, it’s been a bad pantomime and hard to correlate with actual politics, the outworking of which affect millions of people, both outside America and within. In addition, the majority of discussions on each candidate have been so polarised, it takes discipline to block out the noise and assess what’s coming, either way.
On the one hand if Hillary wins, the expansion of further government intervention over the forthcoming presidential term – which is central to Democrat “big government” – would almost certainly deepen the U.S. debt and therefore increase “safe haven gold” buying. On the other hand if Trump wins, the uncertainty of entering uncharted territory together with the standard Republican view of reducing dependence of state benefits (small government) could give the Gold Price a sharp leap upwards.
Some key business commentators agree, stating that the Gold price will rise regardless of whom wins: “No matter who wins the US election, it will be bullish for the gold price. So says James Steel, chief precious metals analyst at HSBC, who believes that gold will continue to rally in the year ahead, particularly should Donald Trump take the presidency.“In addition to economic and financial events, gold is sensitive to geopolitical and even social developments,” said Steel in a research note released on Tuesday.
“This US election may be particularly important in setting the course of US economic policy and foreign policy and hence for gold prices, given the severity of the challenges facing the economy (including still-sluggish economic growth, income inequality, high debt levels and low productivity) and foreign policy entanglements and challenges.” (Business Insider, Gold will soar no matter who wins the US election, 2nd November 2016)
To show how global the financial effect could be, it is worth noting the above article is published in Business Insider, Australia! There is, I’m sad to say no financially beautific way through this coming storm. One can however take financial action with clarity now.
James Butterfill, Investment Europe’s Head of Research and Investment Strategy, went on record yesterday to state that he believes, “gold prices would rise as much as 10% over the coming 12 months if Donald Trump is being elected as the next US president.”
Thankfully, that publication contained a discussion on policy rather than personality and “highlighted that the most marked differences happen when there is a change of political administration, from Republican to Democrat or vice-versa. Hence when a change of administration occurs, equities tend to be very volatile, falling 6% within a quarter while gold conversely tends to rally by 10% within a year.”
Butterfill argued that Gold is considered a hedge to tackle political uncertainty and that Trump, as president, would bring more unpredictability than any president. ETF Securities research chief said it would particularly impact the US Federal Reserve’s leadership and monetary policy strategy.
Many of you follow the commentary of Jim Rickards. Rickards bio is extensive and impressive: “He is the author of The New Case for Gold (April 2016), and two New York Times best sellers, The Death of Money (2014), and Currency Wars (2011) from Penguin Random House. He is a portfolio manager, lawyer, and economist, and has held senior positions at Citibank, Long-Term Capital Management, and Caxton Associates.” Incidentally, Bleyer’s C.E.O. Caroline Peers also worked at Citibank in her earlier career in the London financial markets.
It is worth noting that Rickards is also an Op-Ed contributor to the Financial Times, Evening Standard, New York Times, and Washington Post, and has been interviewed on BBC, CNN, NPR, CSPAN, CNBC, Bloomberg, Fox, and The Wall Street Journal. What’s interesting about that list is it sits at both the left and right of the political isle.
Rickards stated this week “that Trump will probably win” and, if he does “stock markets will crash 10% and gold will rise $100 over night. The markets and polls believe Clinton will win and that is priced into markets in the same way that a ‘Bremain’ was priced into markets prior to the ‘Brexit’ vote.”
What I like about this particular interview is that Rickards separates, once again, personality from even belief in who will win – expounding that; “Should Trump win, which looking at the polls is not an impossibility, gold would likely surge $100 per ounce overnight, says Rickards. What Hillary did was appalling and there will be ‘another reckoning on November 8th’ which the market has failed to price in, creating a good scenario for gold. He says you don’t have to agree that Trump will win, but agree that in reality he could win. For Rickards, this is an excellent opportunity for investors, particularly those who have an allocation to physical gold which he believes is set to rise in the coming months and years.” (Zerohedge, 28th October 2016)
It is this way of thinking – to disregard personal mental and emotional investment in an outcome – and look squarely at the probability and how that will work its way through the system – that I admire. Like Rickards my career background began in the legal world, albeit in London rather than the States. I’ll never forget some great advice of an early mentor and lawyer; “Always prepare your opponent’s case, as well as your own. That way you see what’s coming.”
Financial level-headedness has its kernel in the same truth.
Relating to this, I watched a short, funny interview on CNBC discussing Gold this week. I don’t think it was meant to be funny though. Maybe someone tried to come up with a catchy title but called the piece, “Whom is Gold voting for? A market puzzle” which doesn’t make sense because people buy Gold, Gold can’t think for itself.
There were some interesting comments made in a video interview though, which were worth transcribing: “Janet Yellen is out in 2018 and that’s an end to easy-money Fed policy.” In addition, the general view coming from the Fed is that they’re going to try to hike interest rates in December. But, as one commentator said, “If, however, the Fed backed away and said we’re not rising interest rates for two years, Gold would be up, like, $500 in two weeks!” This helps show us the level of white-washing in government and Fed invention in the entire global pack of cards.
Inherently intuitive, many investors have already got in early this week and positioned themselves into Gold, as the price has edged up closer to its six month high of £1063, sitting at £1057 at time of writing. That now makes a gain of 44.16% over the last year. Silver is quietly putting in a strong performance at a current price of £15.12, almost reaching its previous six month high of £15.92. Over six months Silver has actually risen a higher price percentage than gold of 23.75% vs. Gold’s 19.4%. Over a year Silver has also just beaten Gold with a 49.24% price increase. I often think how much those figures really are compared to the high street savings accounts.
Just an investment of a few hundred pounds a year ago would – upon selling today – bring some very welcome returns to help with Christmas expenses, for example.
In some ways, I wish politics across the pond didn’t affect our great little nation so much but it does. So, while our leaves turn such stunning colours and our minds turn to sparklers and getting those box of Christmas biscuits in early, we would be wise to also think ahead financially. Has the global fiat economy reached a point where to raise interest rates would be temerarious at this point in time, but to keep them at historical lows deadlocks the economy against any semblance of healthy capital growth? And could either Presidential candidate actually do enough to change these base-line rule of economics quickly enough to regain a world without monstrous debt to GDP ratios? Personally, I don’t think so.