Gold: What if Trump wins? - SocGen

Robin Bhar, Research Analyst at Societe Generale, suggests that tightening polls just a week before the US presidential elections have sent tremors through financial markets, as investors rethought their long-held bets on a Hilary Clinton victory and gold is favoured as a safe-haven asset.

Key Quotes

“Gold prices have consolidated in a broad $1,240-1,275/oz range since heavy liquidation occurred in early October, rallying this week and fulfilling its classic safe-haven role that was clearly demonstrated after the surprise result of the UK’s EU referendum in June.

In all probability we believe that both the presidential and congressional elections results will be supportive of gold regardless of the outcome, given the high uncertainty in terms of policy direction and the possibility that the results may be contested.

Candidate Trump is a wildcard. His sources of support and his economic policy proposals will linger after the election even if his candidacy fails. A legitimate source of support has come from those who lost out on free trade. Economies benefit from free trade but the dispersion of the benefits might be narrow.

Under our base-case scenario, a Clinton win suggests economic continuity and such an outcome would broadly support our current expectations for gold. We forecast an average gold price of $1,280/oz this year, rising to an average of $1,325/oz in 2017.

A Trump win would be bullish for gold and a knee-jerk rally to $1,400/oz and even higher is entirely possible. Gold prices could end this year between $1,450-1,500/oz on a Trump win based on stated protectionist and isolationist/ higher geopolitical risk policies, higher budget spending and increased uncertainty. This could result in our 2016 average price increased to $1,300/oz. For 2017, financial markets would then want to wait and see what he actually does, but gold could rise further to $1,550/oz by year end with an average of $1,400/oz.”