Kitco/Anna Golubova
Best-case vs. worst-case election scenarios: Why gold price wins either way

Markets fear uncertainty and there is plenty of it on the table with the U.S. election less than two weeks away.

What does it all mean for gold? Analysts say that even in the worst-case scenario, gold will see higher prices by year-end.

Whether the U.S. will get its best-case or worst-case scenario come Nov. 3, one thing is clear — gold is in a bull rally that is not going away anytime soon, analysts told Kitco News.

“Either way, gold is technically and fundamentally still very bullish. We’ve had three months of consolidation. It got a little bit overbought in August. But the fundamentals are still very positive — rising debt-to-GDP ratio, rising QE, the potential peak in the U.S. dollar, and bottoming of stock market volatility,” Bloomberg Intelligence senior commodity strategist Mike McGlone told Kitco News on Tuesday.

One thing markets are fully aware of is that the U.S. economic situation is still very fragile with Federal Reserve Chair Jerome Powell warning markets in October that not enough stimulus could potentially reverse that recovery.

The two scenarios examined here is a Democratic sweep that would involve massive new stimulus measures and a contested election that could see delayed results and potential political chaos.

The best-case scenario for gold seems to be a clear Democratic sweep at the polls, according to analysts who see Joe Biden spending more. And, according to the latest market polls, this is a fairly realistic outcome at this point.

“I think it will be a Democratic sweep and that should be good for gold. We should get a decent fiscal stimulus and there is a good chance that the Fed will buy most of that fiscal stimulus, which means additional QE. And both of those are very good for gold and potentially bad for the dollar,” said McGlone.

The worst-case scenario would be a contested election, according to analysts, who don’t rule out this possibility amid a very polarized landscape in the U.S.

JPMorgan warned investors this week the Democratic presidential nominee Joe Biden’s lead in the polls is shrinking. The betting markets are pointing to the possibility of a contested election. A higher risk of a contested election could delay stimulus and “likely put some downward pressure on risk markets for the near term,” JPMorgan said in a report.

Back in 2016, markets were surprised when Trump won, which is why many investors are choosing to stay on the sidelines until the results are clear, the analysts said.

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CNBC/Natasha Turak
Goldman is calling a bull market for commodities in 2021 on dollar moves and inflation risk

Goldman Sachs is forecasting a bull market for commodities in 2021 based on its outlook for a weaker dollar, inflation, and the prospect of further economic and fiscal stimulus.

Analysts at the bank on Thursday predicted a 12-month return of 30% on the S&P’s Goldman Sachs Commodities Index, recommending long positions on silver, copper, gold, U.S. gas, Brent crude and jet regrade.

The bank sees upside ahead particularly in non-energy commodities like agriculture and metals, citing tightening supply amid adverse weather conditions and greater demand from China. Economic stimulus measures in the world’s second-largest economy have helped to drive demand for metals to its highest level since 2011.

Goldman expects base metals and agriculture to have “more near-term upside than oil, with smaller inventories to move through before prices begin to rise.”

“Given that inventories are drawing this early in the cycle, we see a structural bull market for commodities emerging in 2021,” analysts led by head of commodities research Jeffrey Currie said in a research note.

Deficits in commodities early in the business cycle signal that the market will likely continue to rebalance, as long as there isn’t a complete collapse in demand, the analysts wrote. Rapid drops in capital expenditure spending for oil drilling, especially shale, and metals are slowing down production in non-OPEC countries, pointing to a gradual rebalancing.

Goldman also expects global jet fuel demand, the drop in which makes up half of current demand loss, to increase by 3.9 million barrels per day from its present levels by summer of next year. Still, industry experts do not see aviation demand recovering to pre-pandemic levels for several years, and airlines are continuing to post record losses.

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Marketwatch/Mark DeCambre
Markets are in ‘eye of the storm’ and mounting turmoil will drive stocks lower and 10-year bonds to negative 0.50%

Markets are enjoying a period of relative calm, but investors should prepare for a volatility burst as the U.S. heads toward the 2020 presidential election and while the economy is still dealing with the disastrous effects of the coronavirus pandemic, says Scott Minerd of Guggenheim Partners.

“The market’s performance and the economy’s recovery is calm compared to the volatility of March and April, but several issues concern me as the eyewall approaches,” Minerd writes in a note set to be published later Thursday but reviewed by MarketWatch.

The prominent investment manager says that trillions in funds doled out by the Federal Reserve and the government directly have helped to paper over some of the big financial problems created by the COVID-19 pandemic, but he says that uncertainties for market participants abound.

Minerd pointed to the protracted and so-far unsuccessful, talks on providing additional coronavirus relief to American workers and businesses, small and large, still reeling from the shocks of the public health disaster.

Calls for further aid come as case counts of COVID-19 are rising anew throughout the globe, with both Germany and France seeing record infections, forcing parts of Europe reinstitute lockdown measures.

“Without fiscal stimulus, personal income will stagnate, job gains will slow, consumers will pull back, and more small and medium-sized businesses will fail, explains the Guggenheim money manager.

“The economic fallout from lack of fiscal actions increases the likelihood of a negative fourth quarter GDP print while Main Street remains in depression,” Minerd said.

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