In the final stretch of the United States presidential election, it became increasingly apparent that the system was rigged in favor of gold. Hillary Clinton, who was the odds-on favorite to win the White House throughout the general election, carries the baggage of perceived criminal misconduct associated with the Clinton Foundation and her tenure as Secretary of State. Donald Trump, on the other hand, is a political outsider running on a platform of shaking up the status quo in Washington D.C.
Whichever way the election would have gone, a perceived coming instability in the Oval Office was expected by many analysts to favor gold and other safe-haven assets.
“Both major party candidates are likely to hurt confidence in the U.S. economy and solvency; both will be good for gold,” Rick Rule, president and CEO, Sprott US Holdings Inc. told Kitco News earlier this year.
“Gold moves on fear, neither candidate inspires confidence,” the renowned natural resource investor added.
As it turned out, Trump pulled a stunning upset to become the 45th President of the United States – a win that shook financial markets and pushed gold up sharply in overnight trading.
“Equity markets are down notably in Asian and early European trading. Gold has, by contrast, increased, outperforming other assets, including other safe havens. It is currently trading at over US$1,300 per ounce compared with US$1,275/oz before the vote counting began,” Juan Carlos Artigas, director of investment research, World Gold Council, said before markets opened on Nov. 9.
Brexit 2.0The price of gold has already benefitted from one safe-haven boost this year when the British passed Brexit, a referendum for Britain to exit the European Union.
Gold had been flirting with US$1,300/oz price levels in the two months leading up to the Brexit referendum. It wasn’t until mid-June, when it became clear that the referendum for Britain to exit the European Union might actually have the votes to pass, that gold took a one-day peek above the US$1,300 threshold.
As voters went to cast their votes on June 23, markets were unsure which way the Brexit referendum would go and gold had retreated to US$1,262/oz. By late evening in the United States, however, it became clear that a majority of British voters wanted to leave the European Union and the price of an ounce of gold shot up as much as US$100 in overnight trading and opened the next morning at US$1,319/oz.
In the two weeks after Brits cast their votes to leave the European Union, gold prices continued to rise, briefly breaking through US$1,350 on July 5.
Many pundits draw comparisons between the anti-establishment sentiment that led to Brits’ desire to break away from the European bloc and the movement in that led to Trump’s successful bid for President of the United States.
While experts will continue to discuss whether the Trump presidency is Brexit 2.0, the initial effect on gold was similar.
As it became increasingly apparent that Trump would win his bid for the White House, gold rose sharply in Asian markets, peaking at US$1,338/oz overnight in the U.S.
“It’s exactly like Brexit,” gold analyst and New York Times bestselling author Jim Rickards said in an interview with Bloomberg Surveillance. “I can’t believe it’s happening twice in six months or less.”
Unlike Brexit, however, the morning following the Trump victory gold gave up much of its gains as investors took profits and shifted money to equities on the U.S. stock exchanges that took big hits in overnight trading.
Rickards and many of his fellow analysts expect gold to reach US$1,400/oz in the coming weeks.
In a report published last week, Thomson Reuters GFMS, which specializes in metal markets analytics, predicted that gold push to at least $1,400/oz if the American people voted in Trump.
Others are calling for a more modest gain for gold, leveling at around US$1,350/oz as markets digest the idea of business mogul and reality TV star with no prior political office experience assuming the presidency of the United States.
The World Gold Council sees Brexit and Trump’s successful bid for the White House as part of a bigger picture that is supportive for gold in the longer term.
“We are seeing increasingly fractious politics across the advanced economies, and this trend, combined with uncertainty over the aftermath of years of unconventional monetary policies measures, will firmly underpin investment demand for gold in the coming years,” said World Gold Council Director Artigas.
Whichever way gold moves in the longer term, on Nov. 8 the safe-haven metal seems to have chalked up another landmark win against the status quo.