We recently wrote an analysis of what could happen to gold If Trump is elected. The current market assumption is that Hillary Clinton will win, so the current gold price reflects that outcome. However, if Donald Trump unexpectedly wins, gold could rise above the unpredictability of his views.
The president is chosen by an electoral college, which consists of one vote for each state member of Congress—or 538 votes combined. It takes 270 electoral college votes to win. That means very few swing states are likely to decide the election. (About 45 states are clearly in one camp or the other.)
The most viewed election polling website is fivethirtyeight.com, based on 538 members of the electoral college. According to the latest update to their website, only 3.7 points separate the total popular vote: 47.5% for Hillary Clinton versus 43.8% for Donald Trump and 7.3% for Libertarian Party candidate Gary Johnson.
However, the election hinges on several key state races that Trump must win to win the election:
Trump can win by taking Ohio, Florida, Nevada and North Carolina, as well as more than 20 other states he is expected to win, but he will likely also have to Pennsylvania (20 electoral votes), where Trump has only a 23% chance of winning, or Colorado (9 electoral votes), where Trump has a 24% chance of winning.
Since the nominating conventions in July, those numbers have seen many ups and downs. The election was seen as a very slim 50-50 proposition as of July 30, after both nominating conventions. Then the odds spread out more widely (89-11 in Clinton’s favor as of August 14). The closest race since then was on September 26, when fivethirtyeight.com gave Clinton a 54.8 percent chance of winning compared to Trump’s 45.2 percent.
The latest overall odds at fivethirtyeight.com are 70.8% Hillary’s chances of winning compared with 29.2% for Trump. The UK betting line – where real money is at stake – predicts 72.7% Hillary’s chances of winning.
In the congressional race, Republicans are seen as a sure thing to keep control of the House, but they currently have only a 41% chance of keeping the Senate, so if Hillary wins and Democrats take the Senate, her Supreme Court picks will likely sail through confirmation. On the brighter side, the Republican-led House should see a decline in the chances of passing several of her proposed spending bills.
This election is far from over. Wikileaks may reveal some information about Hillary Clinton’s “exceptionally careless” emails or the Clinton Foundation’s “pay-to-play” policy of soliciting donations from foreign powers. Donald Trump has also made some inattentive comments, but nothing seems to have dampened the enthusiasm of his supporters, so we must continue to monitor the polls in several key states.
Gold It will likely rise no matter who wins, but if Donald Trump wins, it will likely rise even more and faster.
It is critical to remember this rising gold prices tend to escalate the number of advertisements for gold products, which in turn increases the number of potential customers by contacting coin sellers – online, by phone or in coin shops. Existing customers also escalate the frequency of their purchases as gold rises, making it harder to find some infrequent coins. The most critical lesson I have taught my clients over the 22 years I have been in business is that it is better to buy the right coins two months earlier than two months later.. Up moves can be sudden, pointed and very profitable. Make sure you are ready for the next massive move in gold.
Another problem is growing in Europe – bankrupt banks
The European Union (EU) has not yet begun to work out the details of Britain’s exit (Brexit), but Europe now has much bigger problems stemming from the troubles of banks, which understandably cannot make money in an era of negative interest rates. The German giant German bank – which was three times larger and more powerful than Lehman Brothers before its collapse in 2008 – is close to bankruptcy and Commercial bank is not far behind. Last week, Commerzbank announced it will lay off 9,600 employeesabout 20% of the workforce. Meanwhile, Italy vast banks are struggling with the problem of too many non-performing loans.
The US is trying to fine Deutsche Bank $14 billion, but that amount is still being negotiated. Most market observers expect a German (or ECB) bailout for Deutsche Bank, but if that happens, dozens of other major European banks will be lining up to receive similar lifelines from their governments.
This is similar to what triggered the 2008 financial crisis, when Bear Stearns was saved by a merger as part of a February bailout, but then Lehman Brothers was allowed to fail in September, after which AIG and other major companies lined up for massive bailouts, threatening to bring down the economy because they were “too big to fail.” Most banking analysts consider Germany’s Deutsche Bank to be “TOO big to fail.”
After the 2008 crisis, gold had its biggest bull run, rising from $712 to over $1,900 in three years. We don’t expect a repeat of 2008, but a European version of 2008 could send gold prices soaring.
More and more banks advise customers to “buy gold”
France is holding elections in the spring of 2017. Their socialist president Francois Hollande is running for re-election despite his controversial policies and the fact that France (and most of Europe) is under attack from illegal refugees and homegrown terrorists. In addition, most of Europe is also in financial trouble because it offers depositors interest rates below or close to zero, so gold is very popular in France. Two of the three largest banks in France were in favor of gold in September.
The second largest bank in France, Agricole Creditfocuses on farm accounts in rural France. A recent report said central banks were “running out of ammunition,” so “we still believe precious metals like gold should prove to be an attractive purchase in the medium term in the current environment. This is not only due to growing uncertainty about the ability of global central banks to stimulate their economies; political developments in Europe and elsewhere may [also] “trouble the markets.”
In Switzerland a gigantic bank UBS remains positive for gold even if the Fed raises interest rates this year, saying: “In our view, what ultimately matters for gold is true not nominal yields.” That means “inflation, inflation expectations and the market’s perception of whether the Fed is behind or ahead of the curve.” UBS added that “US long-term real yields have room to fall further, confirming our positive view on gold.”
Gold continues to rise and fall based in part on speculation that the Federal Reserve will hike interest rates.
First, gold rose after the Federal Reserve voted to leave interest rates on hold at its Sept. 21 meeting. Gold then retreated last Friday after one of the Fed’s widely watched inflation indicators rejected 0.1% in August. Despite the fact that most other inflation measures rose in August, Fed watchers now assume a higher probability of a rate hike at the December Fed meeting. According to measurements from the federal funds futures market, the probability of a rate hike has risen to 55.7% last Friday, up from 48.1% the day before. Gold fell Friday, partly on the news. Buy the dips, as 2017 should be a very good year for gold.
Mike Fuljenz is the official precious metals expert at Townhall
