In three weeks we will have a new president-elect here in the United States. Will Hillary Clinton (D) or Donald Trump (R) be calling the moving trucks to prepare for a move to the White House? The jury is still out.
Wall Street analysts say its tough to truly determine which candidate will be the most positive for the financial markets amid all the current rhetoric.
One Wall Street firm believes that a Trump victory could be especially bullish for gold. In a new report released October 14, HSBC Global Research outlines the details noting that “Gold stands to benefit from growing protectionist sentiment globally; a Trump win would be especially bullish.”
The current wave of populist policies and sentiment extend beyond simply the U.S. as notably seen in the surprise Brexit vote this summer, which also boosts safe-haven demand for gold, the HSBC report said. Also, “The possibility that a setback to world trade sparks a fresh round of currency depreciation is gold-friendly,” HSBC said.
What is the connection between gold and world trade?
This is important to consider in light of the increase in protectionist sentiment worldwide.
“Gold prices tend to rise during periods of contraction in world trade, and fall during periods of above-level growth,” HSBC says.
Global Growth Is Slowing
In late September, the World Trade Organization (WTO) slashed its forecast for global trade growth in 2016 by over a third to 1.7%. The WTO said this reflected a slowdown in China and falling levels of imports into the US.
Bottom line for gold: “This marks the first time in 15 years that international commerce was expected to lag the growth of the world economy. In a world where trade flows may be challenged, gold is likely to be an indirect beneficiary,” HSBC said.
Here’s another view. UBS released a new report on US Election Perspectives. The key pointsas we all knoware that the two candidates have quite different proposals for taxes and spending. Here’s a quick snapshot:
“The two candidates’ tax plans vary dramatically for both individual and corporate income taxes.
Put simply, Candidate Trump’s plans center around tax reductions while Senator Clinton’s plans center on tax increases. We expect the 10-year cost of Trump’s tax plans to add $7.3 trillion cumulatively to deficits, including higher interest payments, while Clinton’s tax plan would reduce the deficit by $1.6 trillion.
Likewise, the candidate’s spending plans vary dramatically. Senator Clinton plans to boost government spending by almost $1.3 trillion over 10-years. Candidate Trump has announced plans to reduce government spending by $400 billion over that same period.” UBS Global Research
The UBS economists conclude that: “Both plans boost growth by roughly the same amount over a 10-year period. Trump’s plan also boosts the deficit.”
VOTE: No matter your political stripe it is important to get out and vote. Democracies only work when people participate.
Time for A Portfolio Review: Financial markets are at a critical juncture. The stock market is overvalued and if you haven’t properly hedged your equity assets, now is the time to bolster your physical gold holdings. Gold has a negative correlation to stocks, which means when stocks fall, gold tends to rise.
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