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Source: FX168
Original title: Get Ready! These four scenarios are more likely to occur in the US elections. This scene may trigger an explosive surge in gold
FX168 Financial News (Hong Kong) reported that the US elections are only one week away. The financial market is turbulent and investors remain very cautious ahead of the elections.
Investors are preparing for the four main scenarios that may arise on Election Day: the Democratic Party wins, Trump wins, Congress splits, or the election results are in dispute.
Chris Weston, head of research at Rock Group, said that all of the above results can triggerGold priceLong-term rise, but one of these factors can trigger an “explosive” rebound, while other factors can cause a “slow rise.”
Weston told Kitco News on Friday: “In the long run, all the results will lead to higher gold prices.”
Blue Wave
For gold, the most likely scenario for an explosive surge is when Democratic candidate Joe Biden wins the presidential election and the Democratic Party controls the Senate, there will be a blue wave of voting results.
“What is the situation that will drive inflation expectations, incite the Fed to keep borrowing costs low in the long term and reduce the real interest rate to 2%? If what situation can lead to this result faster, it will be best for gold. ” The situation. For me, it’s more towards the blue wave, “Weston said.
Weston explained that from a simple point of view, the “blue wave” that has not yet been fully reflected in prices can trigger a fall in the dollar and a rise in the price of gold.
“The traditional view is that if there is a blue wave, the US dollar will suffer because it greatly increases the possibility that a large-scale stimulus plan will pass,” he said.
However, Weston added that in the event of a blue wave, the market could also see a stronger dollar, because with the new stimulus measures, the United States could remain an attractive investment destination.
“Given the relative attractiveness of global investment destinations, the strength of the dollar will not come as a surprise. The new corona epidemic hits Europe again and we see signs of concern such as deflation, but if you look at the United States, the $ 3.5 trillion stimulus plan In addition to the more aggressive Fed … we started talking about the history of American exceptionalism, which caused a lot of money to flow into the United States and the dollar to suddenly strengthen. The reason the dollar has performed so well is that the situation in the rest of the world does not look so good.
However, whether the dollar appreciates or not, it is important to gold traders that this precious metal rises.
“You may see a situation where the dollar strengthens and gold also rises. Gold performs very well in this environment,” Weston noted.
Trump wins
If Trump wins, Weston expects gold prices to rise slightly, saying this will largely depend on the results of the Senate and the economic recovery.
“The status quo is good for gold. It depends on the economic situation at the time and what it needs. If Trump enters the White House, it will depend on the economic situation. More stimulus measures will be needed. But 500 billion, 1 trillion, or is it more powerful? ”He said.
Weston noted that if the intensity of the economic stimulus measures is at a low level, “gold prices may go up, but the rise will be slow rather than explosive.”
Weston said that in the event of low stimulus, the Federal Reserve (Fed) will put more emphasis on intervention and take more action.
“We know what the Fed is trying to do, but we don’t know how it will do it,” he said. “We speculate that the Fed will provide more clues on how to generate inflation expectations at its December meeting, which will benefit the gold market.” In fact, this is all to do with inflation-adjusted US Treasuries. “
Divided Congress
Weston said current market expectations of a division in Congress appear to have an advantage.
“If you look at the current gold market, you will find that the idea of the ‘blue wave’ is not convincing. They are more concerned with the division of Congress. sale, it is only a small premium. So if we see fluctuations in the ascending range slightly larger than the descending range in a month, this idea has cooled down significantly. If we are really bullish on gold, the price of gold will still be higher. High. Now it’s very neutral, and the popularity of call and put options is very neutral. The options market didn’t tell me they expected an explosive uptrend, “Weston explained.
This positioning more reflects the division in Congress – that is, the wait for signs of fiscal stimulus in 2021 and signs that the Fed will actually take the action it should.
Weston said: “We already know what the Fed’s responsibilities are. We just don’t know what they are going to do. Once we get a firm grasp on that, the gold market will respond.”
The split in Congress means that fiscal stimulus has become less common, with more emphasis on the Fed’s attempts to create inflation through its own mechanism. “A divided Congress will allow the Fed to intervene more. I think the gold market will pay attention to how the Fed lowers interest rates, which is why this wait-and-see pattern occurs,” Weston noted.
Controversial choice
If the election is closed, it is more likely to have a controversial election result. This result is also likely to cause internal disturbances. However, Weston noted that the impact on the market will only be felt when results are delayed and potential unrest affects the economy across the country.
He said: “If Trump discovers some wrongdoing, it will increase the risk that he will take the matter to the Supreme Court. If Trump does not accept the election results, the possibility of civil unrest is obviously high. It is not necessary now. Too much can cause confusion. But the market will only worry when a controversial election means that it will take a real hit to the economy across the country. “
If this is indeed the case, then the market will expect a drop in US Treasury yields, and gold may benefit from it.
“It depends on what the controversial choice really means and how long it lasts. The market reaction depends on the impact of all this on the economy. The gold will act as a hedge,” Weston added.
By next week, the actual Election Day transaction will be difficult because the results of the general election may not be known as quickly as before.
“It’s about how long it will take us to see the overall results, including the results of the Senate campaign. The market wants to know right away. The sooner we get results, the faster the business world can start daily life and understand investment areas. They need to be involved: “Fiscal status, regulations and taxes,” Weston said, “because finance is the dominant issue today, the ability to pass a large-scale fiscal stimulus plan, or considering what we’ve seen recently , the ability to approve any stimulus plan, is Master the topic. “
The longer the uncertainty lasts, the more panic the market can become.
“In this case, the trend of the price of gold will depend on volatility. If the market falls sharply, we know that gold is not necessarily a safe haven because some people discard gold to pay for other assets. Compared to a period of time.” The current position of gold is more neutral. Some people have been using gold to cover negative results, “Weston said.
In general, Weston believes that gold prices will not collapse, because long-term investment is beneficial for gold.
Revision: TIER
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