Trump or Biden? JPMorgan predicts the election outcome that will send gold prices soaring

Gold prices could jump by as much as five per cent on a “blue wave” for the Democrats and their presidential candidate Joe Biden at next month’s elections, analysts at investment bank JPMorgan said.

A democratic sweep could lead to a 2%-5% spike in gold prices on the back of a “knee-jerk” move towards a weaker US dollar and lower yields, according to JPMorgan metals analyst Natasha Kaneva.

Gold prices have soared this year as investors piled into the traditional safe haven asset to escape the market turmoil triggered by the coronavirus pandemic.

The price of an ounce of gold peaked at a record $2,075 an ounce in August but has since slipped back, trading at $1,899.80 an ounce on 14 October.

The market consensus is that a Biden win would hit markets, as investors react negatively to a tougher tax and regulatory agenda. That would lead to a spike in gold prices, the JPMorgan analysts said.

However, the analysts think a gold price surge on a Biden presidential victory and a Democrat win in Congress could be temporary, as expected government stimulus spending would boost growth.

“We think the initial move higher could prove to be short-lived as a Democratic sweep in November could also clear the way for front-loaded fiscal stimulus, boosting the near-term growth outlook and likely driving higher yields on the margin,” the note said.

If Biden wins but the Republicans hold the US senate, the analysts forecast a two per cent increase in gold prices. The analysts say a Donald Trump presidential win could knock five per cent off gold prices on a stronger US dollar, and they say a contested outcome could boost gold prices two-to-five per cent.

In the longer term, the analysts remain bearish on the gold price, expecting stimulus spending and US Federal Reserve fiscal policy to lead to a downward trend in prices.

“Ultimately, while a ‘blue wave’ outcome could add short-term upside to our medium-term bearish outlook for gold, we expect Fed policy and inflation expectations will matter more for long-term yields, meaning we would still be comfortable with our longer term downward price trajectory, especially if market focus switched to stimulus,” the note said.

In August, investor Mark Mobius said investors should wait for a price correction before buying gold. A correction is typically defined as a 10% or more drop in the price.

“The safest investments are equities and precious metals such as gold. However, I would not advise buying gold or precious metals at this time until a price correction has taken place,” Mobius said.

Legendary stock picker Warren Buffett bought a stake in Canadian gold producer Barrick Gold during the second quarter.

The investment by Buffett’s Berkshire Hathaway raised some eyebrows, as Buffett had previously steered clear of gold arguing it does not produce the same attractive returns as company shares.

“The Barrick Gold investment [is] an interesting and relatively low-cost portfolio hedge – perhaps against some of the higher beta stocks [such as Apple] recently added to the portfolio,” said Cathy Seifert, an analyst with CFRA Research.

By James Booth, Wednesday October 14, 2020 11:39 am