HSBC: Buy Gold No Matter Who Wins Election

November 3rd, 2016 by

In most cases, the uncertainty over which party will occupy the White House in a presidential election year is a cause for some anxiety in the financial markets. Certain industries or asset classes are more sensitive to a victory for one candidate over the other, depending on the Republicans’ or Democrats’ proposed policy platforms. (For instance, big banks typically prefer a Republican in office, and their stock performance reflects this.)

electionThe 2016 cycle has undoubtedly brought these same partisan reactions in the markets to the fore once again. However, in many ways, people are apprehensive about either of the two major party candidates coming into power this year. What does this mean for gold and other investments?

Panic as Election Approaches

As the clock ticks down to Election Day, the nervousness over the result on Wall St is becoming palpable. Although it may not be a full-blown panic at this point, the narrowing of the gap between Democratic nominee Hillary Clinton an Republican nominee Donald Trump has moved the election from a foregone conclusion to a competitive race.

Due to Mr. Trump’s anti-establishment stance, heterodox policy positions, and general unpredictable nature, a GOP victory next week is seen by the financial markets as a bigger risk than a Clinton administration. As mentioned earlier, this is a reversal from decades of political precedent. Mrs. Clinton is seen as a continuation of the establishment, in part because she is running for the incumbent party.

Credits: Clinton (Wikipedia) , Trump (Gage Skidmore)

Credits: Clinton (Wikipedia) , Trump (Gage Skidmore)

In actuality, however, the stock market’s confidence in Clinton is perhaps misplaced when her stances on the issues are considered.

No Matter Who Wins

Both candidates for president have campaigned on trade policies and fiscal plans that are strikingly similar. According to HSBC, this is cause to buy gold no matter which party prevails on November 8th. In either case, albeit to different degrees, gold stands to benefit.

In the event that Trump wins, the shock to the establishment alone would drive some buying of gold. If a President Trump is able to enact even a portion of his platform—protectionist trade deals, renegotiating the country’s debt and military alliances, trillions in new spending—during his “First 100 Days” in office, then gold is poised to skyrocket. HSBC believes it could climb as high as $1,500/oz in this scenario. Stocks would also likely suffer.

If Clinton wins, the results are likely to be the same, if less intense. Government spending will surely grow, stoking demand for gold; Clinton has supported similar anti-trade policies (thanks to nudging from primary opponent Senator Bernie Sanders); and both candidates will almost certainly add to the trade deficit despite any claims to the contrary. A bond sell-off would likely follow a Democratic victory at the polls as investors shift to riskier assets.

Check out Bloomberg’s full rundown of post-election scenarios in the markets.

In an election season filled with unprecedented rancor and uncertainty, the precious metals are the surest protection against market disruptions, irrespective of who ends up in the White House.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.