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No Election Winner Declared, Gold & Silver Volatile

No winner has been declared in the election, and it appears there may not be a winner declared for days if not weeks.

President Trump held a press conference shortly after 2:00 a.m. (EST) on Wednesday, November 4, 2020, to give an update on the election. Among other things, President Trump said, “We were getting ready to win this election, frankly, we did win this election”. Here’s a link to the press conference on Twitter via Team Trump. In addition to discussing the vote in several specific states, President Trump said, “this is a fraud on the American Public. This is an embarrassment on our country.”.

Regardless, not all of the states have reported their election results, and many of those states are the so-called “battleground” states, so as we can see, the election is already in dispute before a winner has even been declared.

Needless to say, gold & silver were falling on what looked like a Trump victory (repeat of 2016?):

Although as America wakes up to political reality this Wednesday morning, gold & silver are on the rise once again.

It seems likely that there will be continuing and even increasing volatility in the financial markets, including the gold & silver markets.

On that note, here are a few different election outcome scenarios and their potential impacts on gold & silver.

CLEAN TRUMP WIN

If there is a clean Trump victory, recall that we saw riots and looting after the 2016 election, but those riots and looting were really nothing compared to what we’ve seen with the civil unrest, riots, and looting in general in 2020. The point is that any post-election chaos could really get chaotic very quickly, bringing on the “fear trade”, in which gold & silver catch a bid and rally. After consolidating since early August, the emergence of the fear trade would likely mean the next leg-up in price.

CLEAN BIDEN WIN

If there is a clean Biden win, I would expect the gold & silver to catch an “inflation hedge” bid very quickly. When it comes to fiscal stimulus, it is generally assumed that Trump will spend, but Biden will spend even more. Considering the supply chain disruptions we’ve seen this year, the shortages of myriad goods and services, and all of the other fundamental supply and demand factors affecting the economy, in my opinion, the major spending by the Federal government alone will be highly inflationary as more and more dollars compete for less and less stuff. Said differently, the kind of fiscal spending Biden would do would make its way into Main Street, in whole or in part, and that would certainly have an effect on consumer prices.

DISPUTED ELECTION, NO WINNER FOR DAYS OR WEEKS

If there is no clear winner for days or even weeks, what would that do for confidence in the United States in general, and, by extension, what would that mean for the US dollar? Would there be a flight to safety into the US dollar when it is the US itself that is the reason for taking that flight in the first place? In my opinion, casting the macro-economics of International Trade in dollars, or not, aside, a loss of confidence in the US, in general, would, by default, lead to more lost confidence in the US dollar. In my opinion, that means gold & silver will catch a big time flight to safety bid.

Those are just a few possible scenarios and a few possible outcomes. The outlook is bullish in my opinion, and it’s really a question of how fast and how far gold & silver go up in price once these dynamics play out?

In 2016, silver was down more than $3.50 within the first couple weeks of the election:

 

We've since had, this year alone, mine closures, refiner closures, mint closures, and logistics problems, so are we really going to see the price of silver falling under twenty bucks over the next couple of weeks in a repeat of the last election?

I don't think so, but if we do, I will personally "back up the truck".

If silver catches one of the bids I discussed above, this chart would turn uber-bullish very quickly:

That is to say, punching through the 50-day moving average in a big way could be giving us the momentum we need to punch through resistance at $30.

Gold is already testing its 50-day moving average:

Gold has moved first, as is often the case.

 Which is also why we see the gold-to-silver ratio has moved up ever so slightly:

If silver begins to catch one of those bids I discussed above, however, we could really see the ratio coming down in a hurry as silver outperforms gold to the upside!

 Palladium is right in the middle of its sideways channel of, call it, between $2200 and $2400:

Will palladium finally breakthrough on its next run-up?

Platinum is still at a discount of about a hundred bucks, year-to-date:

We've been stuck at this level, albeit with some swings, since late May!

Copper, interestingly, has been maintaining above three bucks:

I really don't see much deflationary pressure on raw commodities at this point, and even of support at $3 doesn't hold, there is plenty of support between $2.85 and $2.90.

Crude oil continues to be the great wildcard:

We've just seen our largest rollover in price yet, but have we seen the bottom of this seemingly bearish trend?

Interestingly, the VIX has plunged:

Perhaps market participants feel the markets will get backstopped if they plunge due to the election that's already in dispute?

Yesterday, it looked as if the stock market was pricing in a Trump win:

 

Notice, however, we filled last week's gap-down!

The yield on the 10-Year Note has continued to rise:

If yield rises too much, however, couldn't the Fed just step in and become the buyer of first resort?

Finally, the dollar is in a precarious position:

Just when we may be about to have a crisis in confidence.

Thanks for reading,

Paul Eberhart

 

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Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill.

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