Global investors have voted with their pocketbooks this year and gold and silver are the undisputed winners. There are no hanging “chads” to argue about or uncounted votes left on the floor.
Gold is up 24%, while silver has gained 36%
Both metals remain well below their all-time highs.
As the contest between U.S. presidential candidates Hillary Clinton (D) and Donald Trump (R) remains a near dead-heat, nervous money managers around the world have been diversifying into gold.
No matter your political convictions, there are potential economic ramifications from a Clinton win versus a Trump win. Here is a quick look at a few factors that could impact the economy, financial markets and gold under both scenarios.
Wall Street consensus right now shows a slight edge and expectation that Clinton will take the White House on November 8. That leaves open the door for a stock market shock to the downside if Trump pulls out a win.
Gold impact: Metals like gold and silver would likely show a knee jerk rally in response to a down move in stocks. Gold bullish.
The Federal Reserve
Under a Clinton victory, Janet Yellen is expected to remain in control of the Federal Reserve and an interest rate hike is likely in December.
Trump has criticized Federal Reserve Chair Janet Yellen as being “political.” If Trump wins Novembers presidential election, there is a clear possibility that Fed Chair Janet Yellen would resign almost immediately, perhaps even before the mid-December FOMC meeting, say economists at Capital Economics.
Gold impact: A Trump win could mean low interest rates for longer = gold bullish.
A Clinton win could leave door open for Yellen to hike rates, which could trigger sell-off in stocks and support gold and silver. Gold wins in either scenario.
Both presidential candidates oppose cutting entitlements (e.g., Social Security and Medicare) and favor additional spending on infrastructure (roads, bridges, etc.),” according to a Wells Fargo Investment Institute research report.
Gold impact: bullish
Trumps easier fiscal policy and decreased regulation could drive growth and inflation higher in the near term,” according to a research report from Credit Suisse.
Gold impact: Rising inflation is gold bullish
It is widely expected if Trump wins in November that he would not ratify the current trade deals in progress. A bigger uncertainty and question for the economy and financial markets is would he carry out his threat to raise import tariffs of 35% and 45% on imports from Mexico, and China respectively.
Economic impact: If Trump did impose high tariffs on imports from China and Mexico, there would be a temporary rise in inflation in the US, say economists at Capital Economics. Gold impact: Rising inflation is bullish
Bigger risk:Aggressive trade policies from the U.S. could unleash a wave of protectionist measures similar to those which occurred after the Smoot-Hawley tariff in 1930 and are credited for contributing significantly to the Great Depression.
Gold impact: bullish. Gold remains a safe haven and flight to quality investment vehicle that stores wealth in slow and negative growth period, especially when central banks continue to devalue paper currency.
Status Quo Policies
“Clinton represents the status quo,” a Credit Suisse report says.
Another take: Clinton’s proposals for “taxes, spending, and regulation are negative for financial markets, but congressional compromises may blunt the impact somewhat. When combined with a more positive trade policy, the net overall market impact may be neutral,” Wells Fargo says.
Bottom line: The current environment of sluggish U.S. economic growth, ineffective monetary and fiscal policy has been extremely bullish for gold. A Clinton win could mean more of the same types of policies that have left the economy showing sub-par historical growth.
Gold impact: bullish
This presidential race is too close to call and economic risks loom like black clouds on the horizon. “Higher budget deficits and trade restrictions are prominent risks in our scenarios. Limiting trade, widening deficits, and raising the public debt should be negative for the dollar and U.S. financial asset prices during the next four years,” conclude economists in a Wells Fargo Investment Institute report.
In many scenarios, no matter who takes the White House, gold comes out a winner. What’s in your portfolio right now? Are you properly diversified with up to 30% in hard assets, which include gold and silver?
Take action now before the election roils markets. Gold and silver remain well below their all-time highs, which opens the door to another strong rally before year-end.