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Get Ready for Major Volatility in Precious Metals Markets
Meanwhile, There’s a Bi-Partisan Consensus on Debt Expansion & Interest Rate Suppression
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Volatility is ramping up ahead of next Tuesday’s all-important election.
Equity and precious metals markets got hit earlier this week on lockdown jitters. New virus restrictions in Europe and fears of a devastating second wave in the United States caused investors to place sell orders.
The failure of Congress and the White House to agree on a new stimulus package weighed on the inflation trade and lifted the U.S. dollar index.
Hard assets got pounded, with gold down around $40, or 2%, through Thursday’s close. As of this Friday recording the monetary metal is on pace for a weekly decline of 1.2% with spot prices currently trading at $1,887 per ounce. Gold found support last month at $1,850, so that may be a key level to watch.
Turning to silver, the market is down a little over $1 or 4.2% this week to trade at $23.70 an ounce. Bulls would like to see silver prices continue to hold above the September trading lows around $22.50.
Meanwhile, getting hit especially hard this week were the platinum group metals. Platinum is suffering a weekly loss of 6.3% to trade at $859. And palladium is down 6.7% this week to come in at $2,255 per ounce.
Metals investors should brace for the possibility of more volatility next week. Depending on the outcome of the election, markets could break strongly in one direction or the other.
Most polls suggest Joe Biden is likely to win. Pollsters also see Democrats retaining control of the House and win at least 50 seats in the Senate for an effective lock on power in Washington.
But in this year more than any other in recent memory, the polls could be off. No pollster has a proven model for forecasting turnout during a pandemic with record numbers of votes being mailed in.
There is also a huge enthusiasm gap between the candidates. The campaign with the most energized base normally has a huge advantage.
Democrats were energized to vote for Barack Obama and Bill Clinton twice in elections where Republicans Mitt Romney, John McCain, Bob Dole, and George H.W. Bush each failed to inspire the GOP base.
President Donald Trump’s base remains solidly behind him. His campaign rallies show far more enthusiasm than Joe Biden’s.
Perhaps that will translate into a better showing on Election Day than most pollsters predict. Economic forecaster Jim Rickards predicted Trump’s win in 2016 and thinks he will pull it out once again – overcoming the polls, the media, and the Big Tech censors.
A decisive Trump victory on Tuesday would likely please Wall Street. In 2016, once it became clear that Hillary Clinton would concede and Donald J. Trump would be the next President, stocks surged.
If Trump wins and Biden quickly concedes, a similar scenario could be expected to play out in markets, particularly since Joe Biden vowed, if elected, he would shut down the U.S. economy again in reaction to Covid-19 fears.
And investors would be relieved to get over the political uncertainty. Some may dump safe-haven hedges including gold, possibly sending precious metals prices lower in the near term.
But would Democrats actually concede another election to Trump? Not if Hillary Clinton has her way. She has urged Biden not to concede under any circumstance. And it seems unlikely Trump will concede defeat either.
If the election comes down to a drawn-out battle between teams of lawyers fighting over ballots or if one campaign schemes to get electors to switch sides, then Wall Street could melt down amid the uncertainty.
Some states are already warning that it could take days or even weeks to count all their votes. If the election result remains up in the air Tuesday night and the prospect of social unrest and even deeper dysfunction in Washington, D.C. looms, demand for bullion could surge at least temporarily.
If Democrats ultimately sweep to power and control both chambers of Congress plus the White House, the bullion market would likely see a more sustained boost. With nothing to stand in the way of Democrats’ massive spending agenda, we could be looking at a budget deficit next year of $4 trillion or perhaps even $5 trillion.
That would be hugely negative for the value of the U.S. dollar and hugely bullish for precious metals.
It’s not our place to endorse candidates or tell anyone how they should vote. But we do encourage precious metals investors and sound money advocates to make their voices heard on Election Day.
The sound money movement has very few allies on Capitol Hill. Representative Alex Mooney of West Virginia is one. In the Senate, Rand Paul of Kentucky is often critical of the Federal Reserve and regularly pushes for a full audit of its activities.
Otherwise, when it comes to monetary policy, there is a near bipartisan consensus: the Fed should keep suppressing interest rates and should keep printing up fiat stimulus cash by the trillions.
No election outcome will change the trajectory of monetary policy – at least not at this time. Perhaps a currency crisis brought on by an overextended printing press will put monetary policy front and center in a future election.
In the meantime, gold and silver will continue to serve as vital hedges against both political and economic risks.
Well that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.