Previously seen as an unlikely winning bet by the majority of market participants throughout most of his campaign timespan, Trump is now expected to capitalize on his economic reform agenda, attracting voters yearning for change. As the chances of economic shift rise with Trump’s ascend, you can never be too safe, investors reckoned, rendered gold poised for gains in value closer to the yearend.
Trump’s victory in November would mean a sooner interest rate hike by the Federal Reserve, with subsequent hikes to follow shortly as the Trump administration would be primarily focused on achieving economic normality. Amid the expected rate hikes, the stock market is likely to retreat, along with the value of many assets across multiple sectors of the economy. Bond yields would rise, whilst the fixed-income value would slip, a notion amongst investors spreads. Buying gold seems, therefore, a viable solution to offset the upcoming risks.
“Polls have started to tighten ahead of the US presidential election, and Citi has raised the probability of a Trump victory,” Citi said in a note. “We expect a Trump win would bring out higher volatility in gold and forex, which in turn should lead to higher volumes in other precious metals.”
Gold has risen in value by 26pc in 2016, erasing the declines of the three previous years, not least due to overseas factors such as the negative interest rates regimes (NIRPs) in Japan and the Eurozone, as well as several non-euro economies of Europe (e.g. Switzerland and Denmark).
Gold prices currently stand at $1,337.23/oz in London, and are poised to rise to $1,350/oz in a three-month perspective, whilst a Trump win would lift the prices further – up to $1,425 by a year from now. Should Trump lose, gold would roll back to $1,270/oz by six months from now.
“All eyes today seem to be on the US presidential debate to see how Mrs. Clinton and Mr. Trump do,” David Govett of the UK-based brokerage Marex Spectron said.
“If Trump performs well that has to be relatively supportive for gold. People are scared of the unknown, and he’s the unknown.”
Trump’s reformist agenda is essentially stirring a fair amount of uncertainty in the markets weighing the odds of his November victory. Clinton’s perception in the markets is simple – nothing is going to change in terms of monetary and broader economic policies, with the ultra-loose borrowing conditions prevailing for years to come, and the US fiscal deficit to finance further stock market expansion.
Quite similar to the Brexit scenario, when, as Govett described, “traders were sitting there waiting for polls to be released,” the run-up to the election will be a nervous time for market participants, resulting in “exaggerated moves in currencies and gold.” As volatility rises, gold becomes more attractive.