Politics
US election fears are chasing investors to gold
Bloomberg01.08.2016Read original
As we enter the last 100 days before the US election, global market watchers have been increasingly assessing the risk of a possible Trump presidency. While there are natural risks involved during any election season, when change in power and policy is imminent, global markets have yet to show any serious volatility in the lead up to the US’s November 8th election. This stands in contrast to the Brexit referendum, which had everyone from hedge funds in Hong Kong to the Fed prepping contingency plans months in advance.
Still, Trump’s most trumpeted policies may send the markets into jitter the closer the election comes. The New York billionaire is a staunch protectionist, and has made it clear that he will re-negotiate or cut trade deals that he sees as unfavorable. The risk of less geopolitical security is also a possibility, as Trump has threatened to remove US funding — or complete involvement — from NATO and East Asia, which would invite greater Russian and Chinese aggression.
A Trump presidency, Bloomberg reports, could scare off investors looking at the US dollar as a safe haven, as well as all other global currencies, and chase them towards the world’s most stable mineral: gold.
“If someone like Donald Trump does get himself elected, it will stimulate some fear within the economy as to where things are going,” Richard Hayes, chief executive officer of the Perth Mint, said in a Bloomberg TV interview. “Trump is very much a protectionist, he is very much for almost ‘Fortress America’.”
Gold has rallied 27 percent this year on demand for haven assets following the U.K.’s vote to leave the European Union and as the Federal Reserve refrains from raising rates. The U.S. race remains close after the conventions last month, with polls showing Democratic nominee Hillary Clinton holding a slight lead over Republican Trump. DBS Group Holdings Ltd. has said the markets have yet to deal with the political uncertainty going into the U.S. contest.
‘Suffer Shocks’
“If Clinton is elected, I suspect the run up won’t be quite as strong,” said Hayes, speaking on Monday at the opening day of the Diggers and Dealers mining forum in the Western Australian town of Kalgoorlie. “She is more mainstream, and probably the economy will be less likely to suffer shocks.”
Bullion for immediate delivery traded at $1,348.08 an ounce at 8:01 a.m. in New York, according to Bloomberg generic pricing. The metal reached a two-week high on July 29 after data showed that the U.S. economy grew less than expected in the second quarter.
Demand is holding up well even as markets “have gotten used to the economic crises” after the U.K.’s vote to leave the E.U., said Hayes, adding that concerns about growth were supporting consumption. “I think what we will see if Trump is elected is a rise in the gold price.”
Trade Policy
The real-estate developer turned politician has made trade one of his main themes, saying many agreements signed by the U.S. don’t serve the economy or workers well. Trump is targeting working-class voters by emphasizing his opposition to deals such as the North American Free Trade Agreement.
Banks and miners have also highlighted the possible impact of the vote. While a low probability, a Trump presidency would weaken the fundamentals of the U.S. economy and create uncertainty, according to ABN Amro Group NV, which said bullion would rise more under the billionaire than Clinton.
Gold’s rally is set to endure, with the U.S. election seen as the next big catalyst for prices, according to Australia’s Northern Star Resources Ltd. The U.S. vote will have more of an impact on bullion than the U.K. referendum, Bill Beament, managing director at Northern Star, said last month.
Trump as president risks hurting global trade as he’s opposed to existing pacts and has floated the idea of the U.S. pulling out of the World Trade Organization, Oversea-Chinese Banking Corp. said in a report last week. While financial markets appear to be assuming Clinton will “win the day, the sting of Brexit surprise reminds us to take nothing for granted,” it said.
