Why The Election Favors Gold And Silver More Now

| About: SPDR Gold (GLD)

Summary

The presidential election was until recently thought to be a binary event determining between certainty and uncertainty.

Then in the third debate the Republican nominee refused to guarantee his concession in the hypothetical event of loss, raising the prospect of civil unrest.

The prospect of a Democratic sweep of the executive and legislative branches of government also raises uncertainty.

Because of increased prospect of uncertainty post election, precious metals seem to have a higher likelihood of favorable return, at least into the election.

We had previously thought only a Donald Trump victory would serve gold. However, it now seems that several other scenarios could also weigh favorably for gold.

The election is a whirlwind of uncertainty and it culminates with the voting results and the open of the securities markets on November 9th, or so we hope. After the last presidential debate in Las Vegas, even that seems to be disputable at this point. It's because of the question that was posed to Donald Trump at the third debate, asking him if he would concede victory if he lost. It was asked because of recent statements of his regarding "rigging" and the "rigged system." The important takeaway for investors is that there is now uncertainty to weigh no matter what the result of the election.

In a previous report, I stated that a Trump victory would be good for gold because of the perception of risk that exists (right or wrong) both here in America and abroad. Capital is likely to leave risky assets and other U.S. securities, especially foreign sourced capital, for perceived safe havens elsewhere. The lead among such safe havens given conditions globally is precious metals.

But the argument about a Trump victory left open the possibility of stability in the event of a Clinton victory. Now we cannot even be sure of that. The door has been left open for a disputed election and possibly an uprising of Trump supporters who may feel robbed and disenfranchised. Riots and a divided nation are not good things for America post election.

Recently, other election risks have been raised by some pundits as well. There is concern, though I suspect unwarranted, that the Democratic Party could sweep the Oval Office, Senate and House of Representatives, not to mention the Supreme Court thereafter. The investment community is made up of both democrats and republicans (and independent voters like me), and famously rich investors exist in both parties. However, the financial markets favor a divided government, basically because it limits the ability of either party to do too much damage.

If the Democratic Party gains full control of government, then investors will fret about the possibility of regulation hampering economic growth. We can look to banking, energy and health care for areas where risk might most immediately be realized. Despite the budget balancing achievement of then President Bill Clinton, many will also worry about excess spending and increased taxation, which are stigmas (right or wrong) attached to the Democrats. Stocks could very likely tumult if a sweep were to occur, and possibly as badly as a surprise Trump victory could cause. However, gold, silver and relative securities would likely do very well.

Precious Metal Securities

10-21-16

12:00 PM ET

SPDR Gold Trust (NYSE: GLD)

-0.1%

Sprott Physical Gold Trust (NYSE: PHYS)

+0.1%

iShares Silver Trust (NYSE: SLV)

-0.4%

Sprott Physical Silver Trust (NYSE: PSLV)

-0.3%

Direxion Daily Gold Miners Bull 3X (NYSE: NUGT)

-2.7%

Direxion Daily Gold Miners Bearish 3X (NYSE: DUST)

+2.8%

Market Vectors Gold Miners (NYSE: GDX)

-1.0%

Market Vectors Junior Gold Miners (NYSE: GDXJ)

-0.3%

Goldcorp (NYSE: GG)

+1.0%

Newmont Mining (NYSE: NEM)

-2.0%

Randgold Resources (NASDAQ: GOLD)

-0.1%

Barrick Resources (NYSE: ABX)

-1.0%

Yamana Gold (NYSE: AUY)

-1.3%

Gold Fields Ltd. (NYSE: GFI)

+0.0%

Silver Wheaton (NYSE: SLW)

-0.3%

Coeur Mining (NYSE: CDE)

-0.9%

Click to enlarge

Gold would do well in the scenarios described for a multiple of reasons. First, there is the immediate exodus of capital seeking safe haven and likely to locate it quickly in precious metals and relative securities. Second is the impact these election results would have on expectations for the U.S. economy. Growth expectations would be immediately discounted, possibly only temporarily, but the result would be a devaluation of the dollar to some degree. Changes in the relative value of the U.S. dollar weigh for/against gold, and would do so in a favorable manner in this case.

In conclusion, the election seems to be morphing from a binary event, with a clear winner and loser for certainty/uncertainty, to one with various variables that threaten to weigh against certainty. The summation result is increased uncertainty and a greater likelihood of precious metals benefit at least into the election. Relative risk to precious metal longs is likely a clear and indisputable Hillary Clinton victory with a Republican majority retaining control of Congress. In that case, election relative uncertainty dissipates significantly. I cover precious metals and the factors that move them closely and invite relative interests to follow my financial column here at Seeking Alpha.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.