The election day in a few weeks marks the end of the short-term trading theme, but it may be a new starting point and starting gun for the long-term rise of gold.
During the Mid-Autumn Festival and National Day holiday, the international gold price showed a firm trend. With the follow-up "backflow" of China investors, it easily broke through the $0/900 mark per ounce and returned to the strong price operation range in August and September.
With a little attention, it is not difficult to find that the trend of the holiday gold market is directly related to the dynamics before the US election. The candidate debate and Trump's diagnosis constantly boosted the price of gold, while Trump's high-profile discharge caused gold to fall. Obviously, investors have focused their attention on the US election, the market has entered the "election time", and the event impact model has gradually become clear: the "bad news" about Trump has obviously boosted the demand for safe-haven assets such as gold, while the "good news" has stimulated the strength of risky assets.
However, no matter whether the media machines of both sides go all out, whether it is the latest poll results or the guessing odds of major gaming companies, it shows that the advantage of Democratic candidate Biden has been continuously consolidated and even expanded more than that from August to September. If there is no major accident like Hollywood movies, Trump's defeat has become more and more clear, and many conservative experts are already talking about how to avoid being swept out of the house by the simultaneous congressional re-election. In the next 20 days, the gold market will still rise and fall with the various "tricks" of both sides before the election, but overall it should be beneficial to gold.
More importantly, the polling day of the presidential election may not be the end of the opposition between the two parties, but the beginning of greater chaos. In addition to the persistent contempt for American organizational traditions, Trump's racist mobilization against lower-class whites is even more dangerous, especially when a large number of far-right private armed groups are wantonly active. Once the election results fail to meet their expectations, it is not ruled out that there will be a rapidly escalating internal violent conflict, and its governance will not be achieved overnight.
Watergate is the best reference for us to evaluate the impact of this potential event. Watergate was made public in April 1973, and Nixon resigned in August 1974. During this period, the international gold price rose from about $90 per ounce to $0/60 per ounce, an increase of over 70%. In addition to the stimulation of the market, the public's enthusiasm for gold is also comprehensive. The U.S. Congress had to issue a bill again 40 years after 1975 to allow the American public to hold and invest in gold products, and new york gold futures came into being.
The internal mechanism of gold performance during Watergate is that the political deadlock in the United States directly damaged the prestige of the United States and the status of the dollar. As a mirror image of the dollar, the value of gold is naturally one after another and is strongly driven.
Based on the above analysis, the election day in a few weeks marks the end of the theme of short-term trading, but it may be a new starting point and starting gun for the long-term rise of gold. Faced with the predictable risk of political deadlock after the US election and the "double loose" combination of US fiscal policy and monetary policy, it is inevitable for the subsequent political polarization governance and social tear, and the medium and long-term prospects of the gold market are quite promising.
(Li Pei, a researcher at Jingjin Economic Development Research Center)
(The above contents do not constitute investment advice or operation guide, and the risk of entering the market is at your own risk. )