Canvassers process mail-in ballots in a warehouse at the Anne Arundel County Board of Elections headquarters Oct. 7, 2020, in Glen Burnie, Md. Mail-in ballots have become a point of contention in the U.S. presidential election as President Donald Trump has sought to contest ballots received for processing after Election Day. |
What was already a turbulent period in metals markets due to the coronavirus pandemic could become even more topsy-turvy if the U.S. presidential election becomes mired in a prolonged attempt by President Donald Trump to discredit the results.
Up to and after Nov. 3, commodity prices appeared to be driven by not only who would win the U.S. presidential election but also the potential for public uncertainty over the legitimacy of that win. In interviews and email correspondence with S&P Global Market Intelligence, analysts said metals markets have begun to price in the risk of an elongated effort by the Trump campaign to legally challenge vote totals in individual states that, taken together, could delay acceptance of the results. The Trump campaign has challenged the legitimacy of votes cast or the vote counting process in at least four U.S. states as of Nov. 5 and has threatened to take a battle over the presidency to the U.S. Supreme Court, though the legal grounds for such a court fight are unclear.
"All of the recent Biden claimed States will be legally challenged by us for Voter Fraud and State Election Fraud. Plenty of proof - just check out the Media. WE WILL WIN! America First!" Trump tweeted Nov. 5, which was flagged by Twitter as disputed and potentially misleading.
Regardless of the merit of those legal challenges, markets have incorporated the uncertainty around the presidential election results and the high prospect of a government divided on party lines no matter who wins the White House. Gold, a popular safe haven that has soared in value during the pandemic, has steadily climbed in price since the morning of Nov. 4. The London Bullion Market Association gold bullion price closed Nov. 5 at an almost six-week high of US$1,948/oz.
A drawn-out process in resolving the presidential election could further support gold in addition to silver and platinum, which have recently been priced in correlation to gold, HSBC chief precious metals analyst James Steel said in an interview. "The gold market could very well rally," Steel said.
The gold price did not rally in response to uncertainty surrounding the 2020 U.S. presidential election, but in that case, the market was soft and coming off a "profound" bear market, Steel said. "A contested election would raise uncertainty and be good for gold. It's bullish," Steel said.
Colin Hamilton, managing director of commodities research with BMO Capital Markets, agreed. "In the near term, a period of uncertainty, like today, is good for allocation of gold — particularly as the Fed have to likely boost their offering to tide the economy over as investment stalls," Hamilton said in a Nov. 5 email. "The potentially lower and/or delayed stimulus means inflation expectations have also come down, which has flattened the yield curve and improved medium-term gold expectations."
Industrial metals prices have also started to rise as odds increase for a Democratic win of the White House. However lower prices "could hold until the uncertainty is gone and until there is more clarity about who is going to control the White House," said Kwasi Ampofo, a metals analyst with BloombergNEF.
An ultimate victory from Democratic presidential candidate Joe Biden could be positive for industrials and battery metals though because Biden aims to prioritize shoring up U.S. production and consumption of electric vehicles. Experts have said that by merely ending an effort to ditch the U.S. Environmental Protection Agency's clean car standards established under former President Barack Obama, which would not require Congress, the former vice president could make the U.S. a much friendlier environment for EV deployment.
While a second Trump term would mean some positives for miners, such as the finalization of major federal environmental permitting changes, Biden has proposed support for companies up and down the supply stream, Ampofo said.
"Once this uncertainty with respect to elections and the White House is over, then obviously the overhang issue will be removed and copper and nickel prices will start picking up again. And it will do so strongly in favor of a Biden win as a result of his plan," Ampofo said.
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| Democratic presidential candidate Joe Biden rallies supporters in Philadelphia, Pa., on Nov. 3, 2020. Ballot counting in the city has become a flashpoint in an effort by the Trump campaign to contest mail-in ballots counted after Election Day. |
Some believe that the risk of protracted uncertainty is not high and markets may begin to look beyond the rhetoric put forth by Trump and his campaign. While recount and lawsuit chatter may linger in the public discourse, it appears that "most of these [election] results are taking us to a margin outside of material risk from those channels," TD Securities said in a Nov. 5 note.
Any rally should also be weighed against the latest wave of the coronavirus in Europe. "The Middle Kingdom's economic engine has managed to keep demand expectations [for base metals] from deteriorating for the time being, but Western economies will likely need a new dose of stimulus before they resume growing," the note said.
"While a Republican Senate is interpreted as implying a smaller fiscal package and potential gridlock during the lame duck session, a Biden presidency [would do] more to reduce the geopolitical premium, resulting in a weaker USD which in turn [would] support gold prices," TD Securities added.
The final result of the election may not have as much of an impact on metals markets because even if Biden is declared president-elect, Democrats failed to accomplish a "Blue Wave" election and take control of the U.S. Senate, CPM Group managing partner Jeffrey Christian said in an email. A Republican-controlled Senate would likely hold back the ambitions of a Biden administration to enact hefty stimulus measures as Republicans have historically worked to constrain government spending when Democrats hold the White House, according to Christian.
"Investment flows into gold have subsided, which is keeping gold pricing off of its relative value to the broad dollar. ... However, we argue that investment flows should resume in short order," TD Securities said. "The bar is razor thin for trend followers to add to their gold length — a break above $1,940/oz would translate into a modest buying program."