Trump win in US election could push gold price to $1,400/oz – analysts

A Donald Trump win in the US presidential election – the result is due in a few hours – would be decidedly bullish for gold and could push gold prices to up to $1,400 per oz, analysts said.

Hillary Clinton’s policies are also bullish for gold, some noted, but not nearly to the same extent of Trump’s, they said.

Polls to elect the 45th US President will close between 12am and 6am GMT.

Factors such as economic data, comments for the US central bank, physical demand, purchases by central banks and economic and political developments outside the US “may mean little for gold until well after the US elections”, HSBC analyst James Steel said.

If Republican candidate Donald Trump snatches victory, the first reaction on the financial markets is likely to be one of shock and turmoil, based on his stated trade and economic policies, many noted.

“Gold should profit from this because it would make market participants considerably more uncertain about what will happen,” Commerzbank said. “The response of the markets following the Brexit referendum – when gold surged by around $100 – could serve as a realistic blueprint.”

This time, however, it should take longer for the market’s risk appetite to recover and for gold volatility to subside considering the greater extent of policy uncertainty and subsequent impacts globally, Citi analyst Nell Agate said.

A Trump win would certainly boost volatility across most assets, ICBC Standard Bank analyst Tom Kendall said.

Gold could easily rally to $1,350 per oz unless liquidity in equities and fixed-income markets became constrained to the extent that investors started liquidating gold positions, he noted.

That scenario could result in gold going rapidly in the opposite direction, perhaps even falling below $1,200, but the probability of that is small, Kendall noted.

For gold’s medium-term outlook, a Trump-led administration would be more bullish than a Clinton administration, according to Kendall.

“Although the Trump campaign’s more radical political objectives would be unlikely to make it through Congress, the push back against free trade and more protectionist agenda would represent a further drag on global growth,” he said.

The US rates cycle would therefore become even more drawn out, particularly if healthcare inflation were to fall, and so Kendall would expect gold to move above $1,400 in the first half of 2017.

Citi analysts forecast gold prices to rally 5-7% percent to $1,375-$1,400 per oz in a knee-jerk reaction if Trump wins, which would be a similar Brexit-style macro event, they said.

But if the Clinton wins, a US rate rise in December will probably be fully priced in and the gold price is likely to drop further, market participants agree.

A Clinton win would encourage a ‘risk-on’ reaction among investors partly because of lower uncertainty about a Clinton-led administration’s core policies.

Gold could initially drop to $1,250-1,220 per oz on a Clinton victory at which point physical demand should increase and risk selling should wane, Steel noted.

Citi analysts also see gold selling off and consolidating around $1,225-1,250 per oz if Clinton wins.

“While we would look for a Trump win to be unreservedly bullish for gold, the path for gold may not be straight forward in a Clinton victory,” it said. “Thereafter, gold could recover as the market examines Clinton’s policies, which are also gold-friendly, notably with respect to trade.”

In case of a Clinton win, Kendall expects gold to drop back to $1,250-1,220 per oz while markets refocus on the expected December rate rise. But he would also expect the euro to rally against the dollar, which could mitigate some of the downside pressure.

“Over the medium term, we would not expect much change in the US economic outlook and Federal Reserve policy… Our $1,330 average price forecast for gold in 2017 is predicated in part on this outcome,” he added.

The spot gold price was recently quoted at $1,279.65/1,280.10 per oz, down $2.55 on Monday’s close.

(Editing by Mark Shaw)

 

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