The U.S. elections will take center stage this week and is likely to crowd out any other major reports or events that will unfold this week. Up to the end of the week, the tightening in the Polls between Trump and Clinton helped drive up gold and silver prices. But with the news from FBI Director Comey of clearing Clinton after combing through the recent email batches, gold and silver took a dive as investors lean towards a Clinton win on Tuesday. Last week’s big events including the FOMC meeting – no rate hike, no surprise there – and the NFP report, which came a bit short of market expectations but also presented a higher than anticipated gain in wages was enough to drive up bullion prices. Also, the drop in LT yields and USD helped drive up bullion prices, but will this trend change course?
Gold and silver have benefited from the recovery of Trump in the polls as investors shifting towards safe haven investments: Considering a Trump win is likely to take a sharp turn from the Obama administration and markets – who don’t like unexpected surprises or changes – markets have prepared accordingly and raised the positions on precious metals. But now it seems that Trump has a lower chance of winning the Presidency so gold and silver took a hit as it became a risk-on mode in the markets. But this doesn’t mean bullion won’t bounce back anytime soon: For one, the elections still show it’s a close race and even though Trump has fewer ways to reach 270 electoral votes compared to Clinton, his win remains a possibility — albeit it’s a small chance. And then there is the aftermath of the elections. If the vote comes very close, it could still bring a lot of volatility and uncertainty into the markets, in which gold and silver are likely to strive. Finally, even if it’s a clear win for Clinton, the markets could still turn considering it will remain unclear how the Clinton administration shapes up moving forward. So in the short run, we could still see a recovery in gold and silver prices. But once the dust has settled – and assuming Clinton does win – the markets will get back to focus on central banks including FOMC, ECB and BOJ and how they will impact bullion prices.
Speaking of the Fed, following the latest FOMC meeting and the NFP report, the markets haven’t changed by much their outlook of a possible rate hike in December: The implied probability of a hike next month is 67%, which is actually 5 percentage points below the number recorded a week earlier. Keep in mind that even though the Fed didn’t raise rates in November, it seems that if the next NFP report shows a steady growth in wages and jobs – similar to the one recorded in the recent report – the Fed is likely to move towards raising rates, which is likely to bring down bullion prices in the coming weeks.
Precious metals tend to benefit from market uncertainty and unexpected surprises. If this election were to bring a surprise – a Trump victory or a very narrow win for Clinton that could be contested – the markets are likely to react and drive back up gold and silver. Otherwise, precious metals are likely to keep moving back down especially if the economic data coming from the U.S. continue to show strength.
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