Gold is riding high, hitting over $1307.00 on Wednesday, November 2, 2016, up since the beginning of the month. This upward trend comes alongside a dip in the world stock market, the dollar, and oil prices, as investors are getting anxious. The U.S. presidential election race seems to be tightening, and the Federal reserve is holding their November meeting. With such uncertain times, gold is having its’ shining moment as a safe-haven asset.
The 2016 U.S presidential election is drawing closer, with less than six days to go. The race between Democratic presidential nominee Hillary Clinton, and Republican presidential nominee Donald Trump has proven contentious, and the future of U.S. domestic and foreign policy is on the line. The most recent disrupt came on Friday, after the FBI director, James Comey, announced that the agency will be reviewing emails sent by Huma Abedin, Clinton’s aide.[i] This renewed interest with Clinton’s emails and the private server show some polls shifting slightly in favor of Trump. The ABC/Washington Post tracking poll, which was conducted October 27-30, shows the Democratic candidate has now slipped behind Donald Trump, on 45% to her Republican opponent’s 46%. [ii] The polling average, which is calculated by RealClearPolitics, and offers a much better indication of national sentiment, shows Clinton is now leading by just 2 percentage points, down from 5 percentage points a week ago.[iii] The possibility of a Trump victory has investors concerned, given the uncertainty of the Republican candidate’s stance on key issues including foreign policy, trade relations and immigrants, while Clinton is viewed as a candidate of the status quo.[iv] If Trump overtakes Clinton in the election, it is predicted the price of gold will only continue to rise. His policies, while not always clear, seem that they could weaken the fundamentals of the U.S economy. There is believed he will push towards “protectionism”, bringing slow growth, and a disruption for the global economy. Gold will play its part, as it acts as a hedge against a market in upheaval, and as a good investment during inflation.
Another strong factor in the higher price of gold is the Federal Reserves’ November meeting, which will conclude today. While the Fed is widely expected to leave interest rates unchanged, investors are curious to see if any signal is made about a move higher for December. Their September vote of 7-3 kept rates unchanged in a range between 0.25% and 0.5%, with the understanding that they wanted to wait for evidence of a strengthening economy. Since then, U.S. third-quarter growth figures came in slightly above expectations.[v] Market bets now put the odds of a December hike at around 74%, says the Wall Street Journal.[vi] Traditionally, gold has had an inverse relationship to interest rates – pushing higher during bouts of ultra-loose policy – and is also used as a hedge against inflation. Monetary stimulus like quantitative easing can stoke inflation, according to many experts, and thus the demand for the precious metal usually increases when rates are low.
Important decisions will be made in the next few days that will influence the direction gold moves. If Trump wins it is predicted that gold prices will rise even higher. If the Federal Reserve announces a hike in the interest rates gold might begin to dip. It will be interesting to discuss in the coming weeks how gold, silver, and copper are reacting to changes in politics and potential policies.
For more information on how the 2016 presidential election is effecting the price of gold, read our blog post Unpredictable Outcomes: The 2016 Elections and the Price of Gold
[i] http://www.cnbc.com/2016/10/30/fbi-obtains-warrant-for-newly-discovered-emails-in-clinton-probe–as-reid-accuses-comey-of-hatch-act-violation.html[ii] https://www.washingtonpost.com/news/the-fix/wp/2016/11/02/tracking-poll-finds-race-tied-as-trump-opens-up-an-8-point-edge-on-honesty/
[iii] http://www.realclearpolitics.com/epolls/2016/president/us/general_election_trump_vs_clinton-5491.html
[iv] http://www.reuters.com/article/us-global-markets-idUSKBN12X032
[v] http://www.wsj.com/articles/europe-stocks-fall-on-u-s-election-jitters-1478075733
[vi] http://www.wsj.com/articles/gold-prices-rise-buoyed-by-weaker-dollar-1477318563
