U.S. election next week could kick gold to new highs, no matter what the outcome
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While he allowed that a contested presidential election result might qualify as an exception to this rule, and have a significant lasting impact on the price of gold, his note cited other, more important factors such as U.S. interest rates, inflation and the value of the U.S. dollar.
For this reason, in his view, the outcome of the U.S. House and Senate races is more important then the presidency. If the polls are correct, and the Democrats take control of both houses of Congress, that could pave the way for a swift fiscal stimulus package to be passed into law.
Conversely, if there is a split, and each party controls one house, that could lead to gridlock. That in turn could delay fiscal stimulus, which would be negative for gold, he wrote. In support of the argument, Tariq noted that the price of gold immediately fell two per cent, when earlier this month, President Trump ordered an end to stimulus talks until after the election.
“The mechanism that has pushed gold to record levels this year has been unprecedented monetary/fiscal stimulus, leading to record fiscal deficits, lower for longer interest rates and expectations of higher inflation — all fundamentally positive for gold,” Tariq wrote.
Although his bank expects gold prices to surge 30 per cent to US$2,500 per ounce in 2021 before declining in 2022, the long-term forecast remains conservative at US$1,400 per ounce.
The biggest risk to gold price? A vaccine announcement and a better than expected economic recovery, Tariq wrote.
It’s a dynamic that Smallwood also pointed out — what “would by far be the best thing for the United States … would not be the best thing for gold.”
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