The US presidential election is less than two weeks away, raising significant concerns about the future of politics in the world's largest superpower. Rising tensions favour assets considered ‘safe havens’, including gold, which has gained as much as 32 per cent since the start of the year.
Table of contents:
Who will win the election? The road to 270
Without going into detail about the electoral system in the United States, the so-called swing states, i.e. the states with the most undecided voters, play a key role. It is these that are now becoming the main target of election campaigns. The ‘swing states’ include seven states: Nevada, Arizona, Wisconsin, Michigan, Pennsylvania, Georgia and North Carolina. Together, these states have 93 electoral votes (270 are needed to win) and are the most likely to determine the outcome of the election.
Source: U.S. News
Based on the aggregate results of recent polls, a significant proportion of the ‘swing states’ remain deadlocked. The exceptions are Arizona and Georgia, where the latest polls indicate a slight lead for Donald Trump, although this is still within the statistical error. Despite this, bookmakers are already betting almost confidently on the victory of the Republican candidate, giving him as much as a 60 per cent chance of winning the upcoming election.
Source: RealClearPolling
How will the election affect the price of gold?
Analysis of historical data shows a fairly clear correlation between gold price movements and US election periods. It turns out that gold performed worst during the election quarter, losing value in 77 per cent of cases. The declines typically started just after the election, leading to an average loss of 1.8 per cent.
If, on the other hand, we look at the election results, it is difficult to see any correlation or market preference towards either party's candidate.
Change in the price of gold in Q4 of the election year
Source: Conotoxia own analysis
In the base case scenario, Conotoxia’s analysts assume that the price of gold may rise until the election. However, the election itself could be a turning point, after which the bullion price could start to fall. Nonetheless, the year is expected to end above $2,500 per ounce, which could provide strong support for the gold price.
Change in gold price six months before and after the election (election day = 100)
Source: Conotoxia own analysis
Grzegorz Dróżdż, CIIA, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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