Awaiting the Election
The markets are off to a strong start as the U.S. Presidential election rapidly approaches. It seems as if markets have perhaps already priced in a Democratic victory, and there may not be as much volatility as many had earlier predicted.
A Joe Biden Presidential victory could, however, dictate market action across a variety of asset classes in the months ahead. If Biden were to elect to close the economy, for example, stocks could have a tough road ahead and alternative asset classes such as gold could lead the way higher. The dollar could also possibly take another hit if Biden were to order further large-scale stimulus measures to battle the economic slowdown.
Of course, a Biden victory is nothing more than speculation at this point and Trump is still very much in the race. With some analysts suggesting that Biden is now holding a 10-point lead over Trump the day before the election, the biggest market risk could now lie in the election results and whether they are contested. A disagreement over the results could lead to widespread market volatility and selling. It could take weeks, possibly even months, to sift through a contested result to determine the winner. Recent market action would seem to suggest that markets do not necessarily fear a Democratic victory, but rather are more afraid of unclear election results after the vote.
It seems that Trump and the Republicans have already begun to lay the groundwork for legal action following Tuesday’s vote, and such action could take weeks or longer to be processed. If there is no clear winner within the next few days, investors could become increasingly agitated and could begin to sell out quickly. Although such a scenario could pave the way for higher gold and metals prices, it could also lead to a significant sell-off in the asset class as investors may simply become hungry for cash.
Despite the election and its outcome, the gold market appears to be well-positioned to begin another leg higher. Dollar weakness, an easing Fed and worries over the global economy may all keep the yellow metal supported in the weeks and months ahead.
Stocks may have entered a win/win situation. If Biden were to win the election, the markets could enjoy massive amounts of government spending and stimulus measures. If Trump is to win, markets may move higher on ongoing tax relief and a less regulatory business environment. If equity markets do continue their upwards trajectory, it begs the question of what could fuel a fresh rise in the gold market.
The bulls have control of the market on the daily charts, but that control appears to be fading a bit. The bullish camp must first take out the $1900 level on the upside and then must challenge the October highs near $1940 to maintain upside momentum. The bearish camp, on the other hand, will look to push prices lower and to challenge the September lows near $1850.