We recently wrote an analysis of what might happen to gold if Trump is elected. The current market assumption is that Hillary Clinton will win, so the current gold price tends to reflect that outcome. However, if Donald Trump surprisingly wins, gold could soar over the unpredictability of his views.
The President is elected by the electoral college, which is composed of one vote for each state’s members of Congress – or 538 votes in all. It takes 270 electoral college votes to win. That means a very few swing states will likely decide the election. (About 45 states are clearly in one camp or the other.)
The most widely-watched website for election polling is fivethirtyeight.com, based on the 538 electoral college members. According to their latest Web site update, only 3.7 points divide the total popular vote: 47.5% for Hillary Clinton vs. 43.8% for Donald Trump and 7.3% for Libertarian candidate Gary Johnson.
However, the election hinges on a very few key state races, which Trump must win to carry the election:
Trump could win if he takes Ohio, Florida, Nevada and North Carolina, along with the 20+ other states he is expected to win, but he’ll most likely also need Pennsylvania (20 electoral votes), where Trump has just a 23% chance of winning, or Colorado (9 electoral votes), where Trump has a 24% chance to win.
There have been a lot of ups and downs in these figures since the nominating conventions in July. The election was seen as a razor-thin 50-50 proposition as of July 30, after both nominating conventions. Then, the odds spread wider (89-11 favoring Clinton as of August 14). The closest the race has been since then was on September 26, when fivethirtyeight.com gave Clinton a 54.8% chance of winning vs. 45.2% for Trump.
The latest overall odds at fivethirtyeight.com are 70.8% chances of Hillary winning vs. 29.2% for Trump. The betting line in Britain – where real money is involved – sees 72.7% odds of Hillary winning.
In the Congressional races, the Republicans are seen as a “slam dunk” to retain control of the House, but they currently have only a 41% chance of retaining the Senate, so if Hillary wins and the Democrats take over the Senate, her Supreme Court picks will likely sail through confirmation. On the brighter side, a Republican House should reduce the chances for passage of her several proposed new spending bills.
This election is far from over. There could be some disclosures from Wiki-leaks about Hillary Clinton’s “extremely careless” emails or the Clinton Foundation’s “pay for play” policies of soliciting donations from foreign powers. Donald Trump has also made several careless comments, but nothing seems to derail the enthusiasm of his followers, so we must continue to watch the polls in a handful of swing states.
Gold will likely rise no matter who wins, but it will likely go up farther and faster if Donald Trump wins.
It’s important to remember that rising gold prices tend to increase the number of ads about gold products, which in turn increases the number of potential customers contacting coin dealers – either online, or by phone or in coin stores. Current customers also increase their rate of buying when gold is rising, making some rare coins harder to locate. The most important lesson I’ve given customers in my 22 years in this business is that it is better to buy the right coins two months early than two months late. The upward moves can be sudden, sharp, and very profitable. Make sure you are ready for gold’s next big move.
Another Problem is Brewing in Europe – Bankrupt Banks
The European Union (EU) hasn’t yet begun to work with the details of Britain’s exit (Brexit) from the EU, but Europe now has much bigger problems arising from its troubled banks, which understandably can’t make money in an era of negative interest rates. Germany’s giant Deutsche Bank – which is three times larger and more powerful than Lehman Brothers before its collapse in 2008 – is near failure and Commerzbank is not far behind. Last week, Commerzbank said it would lay off 9,600 employees, about 20% of its labor force. Meanwhile, Italy’s major banks suffer from far too many non-performing loans.
The U.S. is trying to fine Deutsche Bank $14 billion, but that figure is still under negotiation. Most market observers expect a German (or ECB) bailout of Deutsche Bank, but if that happens there will be dozens of other big European banks standing in line to receive similar lifelines from their governments.
This is similar to what created the 2008 financial crisis when Bear Stearns was rescued with a bailout merger in February, but then Lehman Brothers was allowed to fail in September, after which AIG and other big firms stood in line for massive bailouts, threating to bring down the economy since they were “too big to fail.” Most bank analysts believe that Germany’s Deutsche Bank is “WAY too big to fail.”
After the 2008 crisis, gold staged its biggest bull market move, rising from $712 to over $1900 in three years. We’re not predicting a repeat of 2008, but a European version of 2008 could send gold soaring.
More Banks Now Advise Clients to “Buy Gold”
France is holding elections in the spring of 2017. Their socialist President Francois Hollande is running for reelection despite his controversial policies and the fact that France (and most of Europe) is under assault from undocumented refugees and home-grown terrorists. In addition, most of Europe is also under the financial handicap of offering below-zero or near-zero interest rates to depositors, so gold is very popular in France. Two of France’s three largest banks have advocated gold during September.
France’s second largest bank, Credit Agricole, focuses on agricultural accounts in rural France. They said in a recent report that central banks are “running out of ammunition,” so “we remain of the view that precious metals such as gold should prove an attractive medium-term buy in the current environment. This is not only due to rising uncertainty about global central banks’ ability to stimulate their respective economies; political developments in Europe and elsewhere may [also] unsettle markets.”
In Switzerland, the giant bank UBS remains positive for gold, even if the Fed raises rates this year, saying “In our view, what ultimately matters for gold are real rather than nominal yields.” That means “inflation, inflation expectations and the market’s perception on whether the Fed is behind or ahead of the curve.” UBS added that “U.S. long-end real yields have room to fall further, supporting our positive gold view.”
Gold Continues to Rise or Fall Partially Based on Federal Reserve Rate-Raising Speculation
First, gold rose after the Federal Reserve voted to leave interest rates alone in their September 21 meeting. Then gold retreated last Friday after one of the Fed’s widely-watched inflation indicators declined 0.1% in August. Despite the fact that other most inflation indicators rose in August, Fed-watchers now assume a higher probability of a rate hike at the Fed’s December meeting. As measured by the Fed Funds futures market, the odds of a rate hike rose to 55.7% last Friday, up from 48.1% the day before. Gold fell Friday, partially based on that news. Buy on the dips, as 2017 should be very good for gold.
Mike Fuljenz is the Official Precious Metals Expert for Townhall