In US Elections Both Parties Won. And Gold? / Commodities / Gold and Silver 2018

US mid-term elections are behind us. Surprisingly,both parties won! How is it possible? Let’s read our article and find out! Wewill also explain what the election results imply for the world and the goldmarket.

DemocratsWin

The elections were very interesting. We provide youwith the key takeaways, focusing on the possible implications for the preciousmetals. First, Democrats took control ofthe House, the first time in eight years. Their victory will make it harderfor Trump to push his agenda forward. Given that investors liked hispro-business stance, the change should upset the Wall Street. It implies weaker greenback, while stronger gold.

RepublicansWin, Too

Second, Republicanskept control of the Senate. Actually, they increased their majority in theupper chamber of Congress. It means that although Democrats improved theirposition, their triumph is below the (inflated) expectations. You see, this iswhat usually happens in the mid-term elections: voters punish the incumbentparty. So, the retaking control of the House is not a surprise. This is why we have not seen a significantmove in the gold market.

But there was no blue wave, even though the turnoutwas historically high, which was supportive for Democrats (typically, older andwhiter people vote in mid-term elections, but that time Democrats managed tomobilize their base). Moreover, given money, momentum and the retirement of severalRepublican representatives, the resultsare not really impressive for Democrats.

If BothParties Win, Who Loses Then?

Hence, we could say that both parties won (or both lost).The biggest loser is the American politics and society. The country is highlypolarized and split into two camps. It implies that politicians will be lesscapable of finding common ground. More divisions and less cooperation is agreat recipe for lack of any reforms and drifting towards the crisis. Justthink about the high level of public debt. If investors faith in US fiscal capacitydiminishes, gold may shine.

And WhatAbout Gold?

The election results were broadly as expected.Therefore, as one can see in the chart below, the price of gold was slightlymoved, despite some fluctuations during the day.

Chart 1: Gold prices from November 5 to November 7,2018.

But what about the future? Well, the initial move inthe US dollar may betelling. As the chart below shows, the greenback weakened against the euro (althoughit rebounded later).

Chart 2: EUR/USD exchange rate from November 5 toNovember 7, 2018.

It may reflect the fact that Democrats will have theability to investigate the President. Moreinvestigations into Trump’s scandals or even the impeachment vote could rattlethe markets and increase the safe-haven demand for gold.

And, as we have alreadymentioned, Democrats will block Trump’s agenda. Investors could forget nowabout a second round of tax cuts, as the President will be unable to makeany major legislative changes without the approval of the Democrats (but theremay be some room to work together on certain issues, in particular on aspending package to improve infrastructure).

Although it’s too early to fullyassess the impact of the mid-term elections, we see more upside thandownside risks for gold. However, with a split U.S. Congress, there will bea political gridlock. It means that economic factors will become even moreimportant drivers of the gold prices. It’s actually not good news for gold,given the hot economy and the Fed’s tightening of the monetary policy. By the way, today we will see the fresh monetary policy statement. Powell is expected to keep the interest rates unchanged – but who knows? Stay tuned!

Thank you.

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Arkadiusz Sieron
Sunshine Profits‘ MarketOverview Editor

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