(Bloomberg) — Gold fell with copper and oil pared gains 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 a final result.
Spot gold dropped 0.5% and the dollar strengthened as the race’s tightness spurred a flight to the safety of the greenback. Oil in New York rose 1.8%, paring an earlier advance of as much as 3.4%, with expectations OPEC+ will delay a planned easing of output cuts lending support.
Traders are reacting to headlines and early clues of a possible Donald Trump or Joe Biden victory. Trump has once again defied polls and predictions, with a strong showing across the Sun Belt in early results appearing to significantly shrink Biden’s path to victory.
“An improvement in odds for Trump has been positive for risk appetite, which has weighed on gold,” said Warren Patterson, head of commodities strategy at ING Bank NV in Singapore. “Meanwhile, oil has benefited from this risk-on move” and crude would also gain from a Trump win in that there’d be less likely to see Iranian supply returning, he said.
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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.
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 scenario in which neither candidate has a clear path to victory would be murkier for oil and other commodities. 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.
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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