2016 election gold price shocker, can it happen again?

November 3, 2020

New York (Nov 3)  Gold market has been treading water, stuck in a consolidation pattern for more than a month as political uncertainty has dominated the marketplace.

Gold prices have been tightly tethered to the $1,900 an ounce level as investors have been reluctant to take any significant bets ahead of the U.S. general election. According to analysts, memories of the 2016 election night remain extremely vivid on the eve of what is expected to be an unprecedented event.

"I think a lot of investors want to be bullish on gold but they can't forget what happened four years ago," said Charlie Nedoss, senior market strategist with LaSalle Futures Group, in a recent interview with Kitco News. "A lot of investors are sitting on their hands, waiting to see who will win."

The 2016 election night saw one of the biggest swings in gold's recent history. Gold started to rally late in the evening after Republican candidate Donald Trump starting winning in major swing states, including Ohio and Florida, and North Carolina.

According to many analysts, precious metals looked like an attractive safe-haven asset as they expected a Trump victory would create political uncertainty in financial markets. This uncertainty caused stock markets to sell off as Trump's victory solidified. Many analysts were also betting that a Trump presidency would usher in lower interest rates.

However, gold’s rally didn’t last long. Trump made a victory speech at 2:30, and many pundits said it was very presidential. His speech ignited a significant shift in investor sentiment and stocks started to rally. Many investors also started to expect that lower interest rates would be good for equity markets.

By Wednesday morning, the gold market had given up all of its gains and was trading in negative territory. Gold prices saw a 10% swing in the price in a matter of hours. The precious metal never really recovered and ending up trading lower through December.

Many analysts see a lot of similarities between the 2020 election and the environment four years ago. Many pundits were forecasting that then-Democratic nominee Hillary Clinton would become the next president.

Four years later, pollsters have seen Democratic nominee Joe Biden hold a solid lead nationally and in important swing states. Some pundits also see Democrats gaining control of Congress, winning 52 seats  and the majority in the Senate.

However, many still aren't ruling out another Trump victory. Adding to this year's uncertainty is the looming issue of contested results or an extended counting period.

More than 100 million Americans have already voted in advanced polls, roughly one-third of all people who voted in 2016.

"According to the polls, Biden looks to win the election, but you just don't know what is going to happen," said Daniel Briesemann, precious metals analyst at Commerzbank, in a recent interview with Kitco News.

Briesemann said that he sees two scenarios that will be bullish for gold in the near-term one would be a clear victory for Biden and the Democrats controlling Congress.

"There would be expectations of a huge stimulus package to come if the Democrats won," he said. "That would be extremely bullish for gold.

Briesemann added that the second bullish scenario would be if the results were contested. "A contested election would create prolonged political uncertainty that that is good for gold as a safe-haven asset."

According to many analysts, the worst scenario for gold would be if Congress remained split as Republican Senators would continue to push back on major stimulus measures.

However, the major factor that makes 2020 so much different than four years ago is the COVID-19 Pandemic that has killed more than 230,000 Americans and devastated the economy.

Many economists and analysts have said that regardless of who is in power, the government will have to unleash more stimulus measures to support the beleaguered economy.

"No matter who is elected, the virus continues to hurt the economy and that deterioration will mean that governments will have to act. At this point, the U.S. election is not a game-changer that will shift the strong fundamentals in play in the gold market," said Ole Hansen, head of commodity strategy at Saxo Bank.


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