U.S. poll uncertainty to drive up gold, silver demand

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The uncertainty over U.S. presidential election that appears headed for a tight finish is set to drive up the demand for gold and silver coins in the coming weeks, according to participants at a webinar organised by the London Bullion Market Association.  

Democrat candidate Joe Biden is holding a slender lead over President Donald Trump, who is also the Republican candidate.

“The uncertainty level will definitely be a factor. As we go into the election cycle, you tend to have greater demand for gold and silver,” said Bernard Dahdah, analyst at Natixis.

Gold prices have come off their record highs of above $2,000/ounce reached last month and are currently at around $1,954/ounce. Expectations are that the price will touch record highs by around the time polls are concluded in early November.

The political uncertainty may continue to linger for some time even after the polls are over, which should help both gold and silver.

“If you look at history, gold tends to be inversely correlated to the popularity of western leaders,” said Jim Steel, analyst at HSBC. Throughout the presidentship of Bill Clinton and Ronald Reagan, who were two of the most popular figures, gold prices saw a period of low prices.

Strong gold buying emerged during the last presidential polls when Democrat Hilary Clinton was seen ahead for much of the race, but prices nosedived soon after Trump emerged as the surprise victor back in 2016.

Economic uncertainty helps prices

Prices of gold and silver are also likely to find support due to the ongoing economic uncertainty over the pandemic, which has been the main factor behind gold’s meteoric rise.

“Gold is receiving two of the ingredients it needs for a rally, which is debt and liquidity. This is not going to stop in a day,” Steel said.

Though the bullish trend is seen intact over the long term, there is potential for one more correction in the near term. Prices had fallen by the steepest level in a single day last month, soon after hitting a record.

High inflation and diving real interest rates are likely to help gold recoup from any short term falls, analysts said.

“Prices of gold could rise to $2,100-$2,150 an ounce if negative real rates dive even more deeply,” said Nikos Kavaliss, analyst at Metals Focus.

Demand for physical gold in india and china — which account for two-thirds of the demand — have also improved recently following an extended period of slow demand in wake of the covid outbreak.

“Things are definitely picking up. If you look at the discount levels (on gold), they have declined considerably,” Kavalis said. 

“There is certainly an improvement in local physical demand in India and china. Having said this, we have to brace ourselves for pretty poor demand for the next few months compared to normal levels,” he added.

High prices and a need to conserve foreign exchange reserves by central banks in order to help trade is also weighing on gold purchases by them, after a spree of record purchases last year.

A few have even started selling their gold during the economic hardship imposed by covid, analysts said.

The banks will likely hold off from making fresh purchases until an economic recovery is clearly in sight, they said.

Biman Mukherji is a columnist and consulting editor at Indoasiancommodities.com. He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at biman.mukherji@indoasiancommodities.in

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