The Moment of Truth Approaches
Tomorrow is election day. Virtually nothing else matters in the markets right now, and probably won’t until the results are in.
This year’s major complication is that while we may have early indications, it could easily take days or weeks to establish the victor.
If Donald Trump and vulnerable Senate Republicans appear to have the edge on Wednesday, investors may breathe some sigh of relief. They could be less motivated to go out and add to their precious metals stack. That happened literally overnight in 2016.
If Joe Biden and the Democrats sweep to power, we expect many Americans will respond by stocking up on gold and silver.
They will anticipate more lockdowns and the attendant economic carnage. They will fear higher taxes and more regulation.
Deficits will re-emerge as a major issue to worry about as they grapple with the idea of $3 trillion deficits exploding to some level heretofore unimaginable. They will abandon hope of "the swamp" being drained.
Regardless of who wins, the Federal Reserve Note – more specifically, its purchasing power – is likely the loser. Neither side is even whispering about reining in spending or putting the Federal Reserve on a leash.
This chart below from @dailydirtnap on Twitter captures the problem that isn’t going away, regardless of the election outcome:
|Democratic Congress||Republican Congress|
|Trump wins Presidency||More Federal fiscal stimulus, monetized by the Fed and US banking system||More Federal fiscal stimulus, monetized by the Fed and US banking system|
|Biden wins Presidency||More Federal fiscal stimulus, monetized by the Fed and US banking system||More Federal fiscal stimulus, monetized by the Fed and US banking system|
The graphic above doesn’t address a third possibility. The wildcard is a contested election and social unrest on an even larger scale than witnessed in recent months.
Uncertainty may well be the big winner after tomorrow’s voting.
If results are contested, the fiscal and monetary response would be the same; more stimulus, more debt, and more money creation. There is no uncertainty with regards to these policies and, long term, they will be key drivers in the precious metals markets.
Got gold? Got silver?