Trump vs. Biden: What’s at Stake for Metals Investors?
The China virus, the economic lockdowns, and the multi-trillion-dollar rescue efforts of central bankers have dominated markets over the past three months.
However, as lockdowns gradually lift and the 2020 election draws nearer, investors will begin to focus more on political developments.
The once-strong economy that President Donald Trump had hoped would propel him to re-election has collapsed. The President has also taken a tremendous amount of heat from the media over his handling of the COVID-19 crisis, and that has hurt his poll numbers.
Despite these headwinds, polls show Trump still has a good chance of defeating a stumbling and bumbling Joe Biden.
The opinions of pundits and pollsters carry far less predictive weight than the opinions of people who are actually putting their money on the line. The RealClearPolitics betting odds currently show Trump stands at +8.4 (50.3 - 41.9) vs. Biden in terms of his chances of winning the White House.
Just as important for investors could be the fight for control of the U.S. Senate.
Wall Street could probably stomach a Biden win and a Republican hold of the Senate. Divided government forces compromise and makes radical tax or regulatory changes unlikely.
But if Democrats win control of the White House and both chambers of Congress, the prospect of the political left wielding unchecked power in Washington could send the stock market reeling and investors running to safe havens including gold and silver.
The last time a Republican was up for re-election was 2004. Incumbent President George W. Bush faced off against Democrat challenger John Kerry.
Gold and silver markets performed well in the second half of 2003 and made modest gains in 2004. The metals were in the early stages of a major bull market.
In 2008 (when Barack Obama and John McCain were vying for the White House), the financial crisis hit.
Silver got slammed along with virtually all other assets during that infamous autumn. Gold, however, weathered the storm quite well and ended up putting in a gain for the year.
The stunning election victory of Donald Trump in 2016 lit a fire under the stock market and put something of a damper on demand for physical precious metals.
Gold prices are now up since Trump’s election win and inauguration, while silver has recently climbed back toward break even for the Trump era.
Unlike stocks, precious metals tend to benefit from the “fear” trade. If a Democrat (presumably Biden although he’s not yet officially the nominee) wins the White House in 2020, a lot of investors may decide to hunker down and get defensive – especially if a “blue” wave shifts the balance of power in the Senate.
By late summer or early fall, gold and silver markets may begin to display an inverse correlation to trends in President Trump’s and the GOP’s election prospects. However, larger macro forces now in motion – namely, exploding government debt and infinite Quantitative Easing from the Fed – will stay in motion regardless of who wins.
It’s only a matter of whether the election results accelerate the threats to the value of the U.S. dollar and dollar-denominated IOUs.
There is no viable political solution to the current crisis. There will be no return to normalcy in the next four years. The fundamental reasons for investors to own precious metals will remain compelling.
Therefore, if the GOP keeps the White House in 2020, it’s not necessarily good news for Wall Street and bad news for gold bugs.
Recall that when George W. Bush won re-election in November 2004, gold was trading at a mere $450/oz. The money metal went on to hit a record $1,000/oz in early 2008.
Over that same period, silver advanced from under $8/oz to over $20/oz. Importantly, precious metals vastly outperformed the stock market through the four years of Bush II’s second term.
Do elections matter? Of course. But they don’t necessarily make or break bull markets for any asset class, including precious metals.