Gold will be a winner, no matter the outcome.
In the early hours of Wednesday, around 1 a.m. in Vancouver, Randy Smallwood, chief executive of Wheaton Precious Metals Corp., was celebrating a new milestone for his company.
That night, after months of planning, Wheaton finally started trading on the London Stock Exchange and Smallwood was hoping to capitalize on a crush of investor demand for gold and silver in the face of increasing uncertainty, in the form of the global pandemic, a battered economy, growing global trade tensions or a U. S. election that is simply too close to call.
“The biggest catalyst ( for gold prices) is going to be the U.S. election,” he predicted in an interview with the Financial Post. “I still think there’s a risk of some serious, serious problems … when that happens I think that’s when you want to be investing in precious metals.”
“It wouldn’t surprise me to see gold kick up to new highs,” he added, a welcome prospect for his company, which provides mining companies with cash for a share of the revenue or gold from their mines, known as streams or royalties.
Gold has enjoyed an impressive 23 per cent rally this year, reviving its status as a safe haven amid a pandemic- induced global economic recession, and analysts believe continued uncertainty on the global political and economic fronts means investors will park some of their funds in the yellow metal.
While gold hasn’t exactly lost its sheen, as of Thursday it had declined just over nine per cent to US$1,868.20 since hitting an all-time peak in August at US$2,070.05.
Part of that may be related to investor fatigue.
In an Oct. 23 note to investors titled Gold: Investment demand key to higher prices, UBS Group AG analysts wrote that gold has been going gangbusters. Already, inflows to gold exchange traded funds — in which investors buy shares in a fund that are backed by physical bullion — hit an all-time record at 1,027 metric tons as of mid- October although they have been slowing since August.
“Then and now, investors buy (into gold) when U. S. real rates fall, financial market volatility is high and the U. S. dollar is low,” the UBS analysts wrote in the note.
They suggested several possible catalysts, including new pandemic related restrictions, a weak U. S. dollar as a result of additional fiscal stimulus and an unexpected outcome in the upcoming U. S. presidential election on Nov. 3.
Wheaton Precious’s Smallwood thinks at least one of the three scenarios is likely to come true.
In his opinion, any election outcome could trigger gold prices.
The pandemic is leading an unprecedented number of people to vote by mail. That could delay the vote tally on election day and lay the groundwork for a legal fight about who won, which could trigger higher gold prices, he said.
Alternatively, if the advanced polls are accurate — many show Biden leading in key states — an election victory for the former vice-president would lead to additional fiscal stimulus, which would also weaken the U. S. dollar and lead to higher gold prices, Smallwood predicts.
If Trump is elected, many of his policies on trade and the economy may reinforce the trends that have pushed gold higher in the past year, he added.
“Everywhere I look, I see a weaker U. S. dollar, which bodes well for gold,” said Smallwood.
But there is also a viewpoint that the presidential race is actually a distraction from the fundamental factors that move the price of gold.
Fahad Tariq, an analyst at Credit Suisse Group AG, is skeptical the election will have anything more than a “transient effect on gold prices.”
“The data i ndicate a slight increase in gold price volatility one month ahead of elections, compared to non- election years, though the impact is minimal going back to 1990,” Tariq said in a recent note.
He allows that a contested election result might qualify as an exception to this rule and have a significant lasting impact on the price of gold. But his note cites other, more important factors such as U. S. interest rates, inflation and the value of the U. S. dollar.
For this reason, in his view, the outcome of the U. S. House and Senate races is more important than the presidency. If the polls are correct, and the Democrats take control of both houses of Congress, that could pave the way for a swift fiscal stimulus package to be passed into law.
Conversely, if there is a split, and each party controls one house, that could lead to gridlock. That in turn could delay fiscal stimulus, which would be negative for gold, he wrote. In support of the argument, Tariq noted that the price of gold immediately fell two per cent, when earlier this month, President Donald Trump ordered an end to stimulus talks until after the election.
“The mechanism that has pushed gold to record levels this year has been unprecedented monetary/fiscal stimulus, leading to record fiscal deficits, lower for longer interest rates and expectations of higher inflation — all fundamentally positive for gold,” Tariq wrote.
Although his bank expects gold prices to surge 30 per cent to US$ 2,500 per ounce in 2021 before declining in 2022, the long- term forecast remains conservative at US$1,400 per ounce.
The biggest risk to gold price? A vaccine announcement and a better than expected economic recovery, Tariq wrote.
It’s a dynamic that Smallwood also pointed out — what “would by far be the best thing for the United States ... would not be the best thing for gold.”