Why gold will rise no matter who becomes the next U.S. president
Published On: October 20, 2016
Gold prices have enjoyed a hefty climb so far this year as the market continues to guess the pace and timing of the next U.S. interest-rate hike, but the battle for the U.S. presidency is set to take center stage as Election Day nears.
And it doesn’t matter if Republican Party nominee Donald Trump or Democratic Party nominee Hillary Clinton moves on to be the next president of the United States—gold is likely to come out a winner, George Milling-Stanley, head of gold investment strategy at State Street Global Advisors, told MarketWatch.
“I would look for a sustained rise if Trump is elected, with perhaps a gain of shorter duration if Clinton is victorious,” he said.
“There can be little doubt that a Trump victory would be disruptive in both political and economic terms, given that this is what the candidate has promised,” he said. “I would expect gold prices to head higher on increased safe-haven buying in the event of a Trump victory.”
Trump has promised sweeping tax cuts and a large jump in infrastructure spending, arguing that the plan would create millions of new jobs. Clinton has called for tax hikes on the wealthy. She’s also called for closing corporate tax loopholes and other reforms that would help pay for an infrastructure spending plan of her own.
But gold prices are likely to climb even if opponent Clinton wins the presidency, said Milling-Stanley.
Gold probably wouldn’t see quite as dramatic a rise in the event of a Clinton win, compared with Trump, but Clinton as president is expected to have inflationary implications, which would imply higher gold prices as well, he said. Gold is often used as a hedge against inflation.
“There is little detail available over [Clinton’s] plans for increased spending on infrastructure, but that could be a factor in raising the rate of inflation,” said Milling-Stanley.
Still, the presidential election is likely a temporary distraction.
Milling-Stanley said interest rates will remain the gold market’s primary focus.
So far, “I have not seen convincing evidence of any significant moves in the gold price contingent on developments in the presidential election campaigns, and I would expect that to continue,” he said. “Shifts in the financial markets’ interpretation of whether new comments from FOMC members should be seen as hawkish or dovish look likely to continue to dominate.”
Gold is much more “responsive to interest-rate concerns, than to presidential politics,” ensuring further volatility for gold and financial markets across the board, he said.
And given the current climate of uncertainty, Milling-Stanley said he does “not see a lot of downside risk for gold.”
December gold futures GCZ6, -0.09% settled at $1,262.90 an ounce on Tuesday. The precious metal is up roughly 19% year to date, leaving it on track to break a three-year streak of annual losses.
Once the Federal Open Market Committee actually raises rates, Milling-Stanley expects the U.S. dollar DXY, +0.37% to decline and gold to rise—which is what happened when 25-basis-point rate increase was announced in December of 2015.
“Movements in the dollar look very much to me like a repeat of the ‘buy the rumor, sell the news’ activity we saw last November and December,” he said.