(Bloomberg) — Oil, gold and copper fell as tight races in battleground states in the U.S. election shook traders’ initial faith in a decisive outcome, raising the prospect of a prolonged wait for the final result.
Spot gold dropped 0.9% and the dollar strengthened as the closeness of the race spurred a flight to the safety of the greenback. Oil in New York fell 0.5%, reversing an earlier advance of as much as 3.4%.
President Donald Trump has once again defied polls and predictions, with a better-than-expected showing that appeared to significantly shrink Democrat challenger Joe Biden’s path to victory. Trump said he will petition the Supreme Court to stop ballot counting because the election has been ridden with fraud, even as he claimed without evidence to have won. Biden didn’t concede defeat and it looked likely that the final result would not be known for some time.
“The only thing we know for a fact is that the uncertainty will linger for a while after Trump’s premature announcement and Supreme Court threat,” said Ole Hansen head of commodities strategy at Saxo Bank. “Most assets classes are selling off while bonds and the dollar have rallied.”
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The stakes have never been higher in a presidential election as whoever wins will have the monumental task of leading the U.S. in its fight against a virus that’s claimed more than 230,000 lives in the country and decimated the economy. On a global level, the next president will also play an integral role in shaping domestic as well as international efforts against climate change, the use of fossil fuels and the pace of energy transition.
“Clearly the Blue Wave has not materialized as the polls predicted,” said Wayne Gordon, executive director for commodities and foreign exchange at UBS Global Wealth Management. “The consequence of a Trump victory could be that the fiscal packages come more quickly, but potentially be of a smaller amount.”
During his presidency, Trump took a hard-line stance against major oil producers Iran and Venezuela by means of crippling sanctions, tightening global supplies. His support for American shale producers helped the nation’s output rise to a record, adding more supplies to the global pool.
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A victory by Biden could pave the way for the roll-out of more fiscal stimulus that could lift equity and commodity markets –- particularly gold, which benefits from a weaker dollar due to money printing — in the near term. It could also lead to stricter regulation of shale drillers and also signal a detente with Iran, which would unleash millions of barrels a day in fresh crude exports.
A marginal win by Biden in which Republicans retain control of the Senate may also unsettle investors, as they would be reminded of the divisions that have stalled promised spending.
Delays to any conclusive result over the next day or so should offer support to the dollar and would pressure prices of commodities, said Vivek Dhar, an analyst at Commonwealth Bank of Australia. “Gold, metals and oil –- particularly oil and copper -– will be sensitive to those dollar movements.”
See also: Crude Oil Looking to OPEC+ Move More Than Vote Counts
The futures curve for Brent shows there’s still some concern about a potential glut even after increasing signs the OPEC+ alliance will delay easing production cuts as lockdowns are imposed in Europe and Libyan production rises.
“Under Trump, there’s a bigger chance of oil prices rising,” said Fereidun Fesharaki, chairman of industry consultant FGE. “The market has also began to realize that the selloff has been overdone. We keep forgetting that Europe is not that important in terms of oil demand while OPEC+ stays committed.”
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