September 15 2016
What impact will the U.S. Presidential election have on gold prices, monetary policy, wages and trade agreements? Our GFMS metals team has taken a close look.
Heightened volatility in the run-up to this year’s Presidential election seems inevitable given the divergence in policies of the two main candidates.
This uncertainty could have a significant bearing on the metals markets, which is why it is important to be prepared for these movements and to understand the likely economic implications from the result of the Presidential race.
Thomson Reuters Eikon will have the full story of the U.S. election, including information you need to compete in the metals trading place.
Here are some of the factors that traders will need to consider:
Another gold rush?
In the immediate aftermath of the Brexit vote, gold rose by US$105 per ounce (on an intraday basis) before settling at around $1,300 per ounce. The next major shock could well come from the U.S. election.
In the view of the GFMS team of metals analysts, the potential ramifications for the gold market are significant in a number of ways.
A Donald Trump victory would lead to greater uncertainty on a geopolitical level given his lack of experience in politics in general and foreign policy in particular. It is this uncertainty that would be the key stimulus for a price hike on the back of safe haven purchases. This could spark a rally to a multi-year high of $1,500 per ounce.
Should Hillary Clinton win, as the polls have been predicting albeit it with considerable fluctuations — see our U.S. election app — then gold prices could lose some ground because Clinton has produced more detailed policy proposals, most of which build upon those of the Obama administration, causing the risk premium in gold prices to drop.
USD and monetary policy
The increased uncertainty caused by the Presidential election could put considerable downward pressure on the U.S. dollar.
Trump’s views on foreign affairs and the potential effects of his policies on the U.S. economy are likely to create a lot of short-term fluctuations in the dollar and global financial markets.
The impact of a Clinton win is expected to be less drastic on the political climate because she belongs to the same party as the incumbent President.
Either outcome creates a degree of uncertainty and cautiousness across global markets considering that the next President will have an indirect influence on interest rates.
Infrastructure, wages & mining
In such a polarised election campaign, both candidates have acknowledged the poor state of infrastructure, as well as the economic implications of raising the minimum wage and reforming mining policy.
Trump has indicated that he will roll out more proposals in the near future but has stated that his plan will boost the U.S’s infrastructure. In contrast, Clinton’s plan would amount to roughly $60 billion per year in spending on transportation projects.
The three metallic resources that would be expected to gain most from this would be aluminium, copper and steel, although silver could also be a beneficiary from the photovoltaic sector.
The GFMS team expects that the Republican candidate would gradually relax the process of approval for developments of U.S. mines and would not be surprised if the reverse were true under another Democrat administration.
The differing levels of approvals will potentially impact metal production at the margin both directly and indirectly, with the latter route being impacted through energy availability and cost (over time).
Both candidates are now proposing to raise the minimum wage. Clinton supports raising the federal minimum wage from $7.25 to $12 an hour (and is in favour of a higher floor in some cities).
Meanwhile, Trump revised his view in July and is now in favour of the federal minimum wage rising to $10 an hour.
Increased wages for low income households will likely induce higher spending — for example, aluminium used in the packaging of soft drinks should increase and purchasing of consumer electronics is also likely to increase, to the benefit of the usage of copper wiring.
The Trans-Pacific Partnership is a proposed trade agreement among 12 Pacific Rim countries that reduces trade barriers.
The Transatlantic Trade and Investment Partnership is a proposed trade agreement between the United States and the European Union that removes tariff and non-tariff trade barriers, boosts transatlantic investment, and reduces regulatory differences in an effort to realize trade potential.
Both candidates in the U.S. election are against TPP and neither have commented on TTIP.
Neither outcome is expected to materially impact the precious metals market, given that these trade agreements are not currently in place. The trade potential foregone, however, would have longer term implications.
Understand the volatility of the market and know how to invest during the U.S. Presidential election. Thomson Reuters Eikon delivers the information you need to compete and win in the metal trading marketplace.