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Soapbox: Brace your wallet

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Are you ready for President Biden? You still have a couple of days to prepare for a clearly outright victor to whom the world may wake up to on Wednesday 4 November. According to reports, more than 66 million of those eligible to vote had already cast their ballots by 27 October, the Covid-19 pandemic encouraging the early turnout. The count of the votes could last days after 3 November. Meanwhile, President Trump continued to undermine confidence in postal voting, Tweeting on 26 October that there are “big problems and discrepancies with mail-in ballots all over the USA. Must have final total on November 3”. That ‘final total’ is not going to happen by 3 November. What might he do about that?

A Biden victory would please east and west coast Liberals in the US but it could be bad news for the US dollar according to Goldman Sachs, UBS Asset Management and Invesco, all of whom have recently told their clients that a President Biden will mean a weaker Greenback. “The wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets”, says Goldman. The gold price usually inversely correlates with the US dollar – so a weaker dollar typically means gold pushes higher.

But before we rush to buy even more gold – which might be wise to do – we must pay lip-service to considering the possible alternative outcomes of the election.

Election outcomes

The first possibility is that Trump in fact wins, although according to the bookmaker Paddy Power that’s unlikely. Paddy places Trump 4/1 as the popular vote winner and Biden 1/7, with 4/11 in favour of the Democrats as the winning party and 7/4 as the Republican. According to the Financial Times, Biden is on course to win 273 votes in the Electoral College, giving him a very narrow victory (he needs 270 to win) while Trump languishes on 125 votes. The race is narrower than the mainstream mass media would have you believe. If Trump wins we can expect an outpouring of aggrieved Democrat-leaning protests, which if they turned out to be enduring and violent would dent the dollar’s standing and benefit supposedly riskier assets such as gold.

The second possible outcome is that Biden has a clean sweep and not only wins the election but the Democrats additionally end up in control of both the House of Representatives and the Senate. That would enable Biden and his team to legislate to introduce a proposed $1.7 trillion climate policy and a $1.3 trillion infrastructure improvement plan, adding to the $27 trillion national debt. He has also committed himself to higher corporate and capital gains taxes and tighter regulations on a wide range of industries. This too would put pressure on the dollar and benefit gold. J.P. Morgan has projected that such a clean sweep by the Democrats could result in a 2%-5% spike in the price of gold.

If Biden wins the presidency but the Republican Party retains control of the Senate, his hands will be tied and the situation likely to be calmer for both the dollar and for gold.

We will see four years of Washington D.C stagnation, similar to the second term of President Obama. Not that a Biden/Democrat victory would necessarily translate into a weaker dollar – the last two Democratic presidencies have coincided with a stronger dollar, although the contexts were very different.

 

Supreme Court looks likely

What happens if neither Biden nor Trump clearly wins outright and the result is contested? That would inevitably mean the election’s outcome would end up in the Supreme Court, which with the appointment of Amy Coney Barrett to its bench means the court now has a solid conservative majority. In other words, a bias towards Trump. If the election does become entangled in legalistic machinations, the US could find itself President-less until 2021. Depending on how the process translated into unrest on the streets, the outlook for gold could be extremely bullish.

The background to all this is the rising US national debt and the International Monetary Fund’s forecast that the country’s debt will be 160% of gross domestic product by 2030, even without any further stimulus. The higher the debt/GDP ratio, the higher the interest rates demanded by investors who become increasingly nervous their investment may turn sour.

Where does this leave us? Opinion polls can turn out to be wrong (we need only remind ourselves of how badly they misjudged Trump’s campaign in 2016 against Hillary Clinton); perhaps Biden will become President but not win the Senate and his grandiose taxpayer spending plans will be paralysed; perhaps Trump will concede gracefully.

But with less than a week to go it is still too close to call – and the lack of a clear winner so late in the game suggests that the finale will be messy, muddled, and argumentative. This is not a comforting scenario in a place where there are more than 300 million guns in private hands. It is a clear indicator of one thing only – you might think about stocking up on more gold via Glint.

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