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Gold Price Analysts Watching For Surprises As US Midterm Elections, Fed Meeting Near

New York (Nov 3) Analysts are focusing on next week’s midterm elections in the U.S. and the Federal Reserve’s monetary policy meeting as gold tries to hold significant support above the $1,230 an ounce level.

While the majority of analysts interviewed by Kitco remained bullish on gold price next week, many experts talked about uncertainty in the air due to Tuesday’s midterm elections in the U.S. and Thursday’s U.S. central bank monetary policy meeting.

However, the midterm elections pose the biggest risk to the gold market because the Federal Reserve is not expected to raise interest rates until December, according to the analysts.

Political Gridlock Could Be Good For Gold

Polls are suggesting that the midterm election results will divide the Congress with Democrats gaining control of the House and Republicans winning the Senate.

“The midterm election will likely split leadership, with different parties controlling the House and the Senate, making policy agreement very difficult,” said Capital Economics senior commodities economist Ross Strachan.

Gold is likely to benefit from this type of political environment, added TD Securities head of global strategy Bart Melek.

“Midterm elections should create uncertainty about policy, which means even more gridlock in the U.S. government … Volatility is typically not a bad environment for gold. But, the impact won’t be seen right away, it will be something that gradually builds,” Melek said.

What this might mean for the market is almost no chance of agreement between the two parties, TD Securities said in a report released in October.

“We think Democrats will begin impeachment proceedings if they win control of the House, which likely will preclude any cooperation with the Trump Administration. Even in the absence of impeachment, common ground on infrastructure will be hard to find; we do not expect any meaningful additional fiscal stimulus over the next two years,” the TD strategists said.

The market environment following the election is likely to be risk-off, which is good for the yield curve and gold prices. “A divided Congress should mean a risk-off reaction due to political uncertainty, which should bull steepen the yield curve,” the report noted.

The biggest surprise the markets could see from the midterms would be Republicans maintaining control of the Congress, Capital Economics U.S. economist Andrew Hunter added.

“In this case, there might be hope that they would follow through on recent promises of tax cuts and that would benefit the U.S. dollar and the U.S. Treasury yields. Otherwise, there’s little prospect of more tax cuts and stimulus,” he said.

Any election result that is “off consensus” could put upward or downward pressure on gold, explained RBC Capital Markets commodity strategist Christopher Louney.

“Whichever one surprises more versus consensus. The result of the election and how policy changes versus what we experienced in the last two years will have implications on the news flow and the narrative around the economy, trade, currencies, and ultimately gold,” Louney said.

In another surprise scenario — where the Democrats regaining control of Congress next week — it will be much more difficult for the U.S. President Donald Trump to pass more business-friendly policies, which at the end of the day will benefit gold, Australia’s Perth Mint Richard Hayes told Kitco News earlier this week.

“If Trump doesn’t do well during the midterm elections it will bring people back to the bullion market,” he said on the sidelines of the London Bullion Market Association’s 2018 precious metals conference. “For many bullion consumers, Trump is their guy and with him, in office and Republican’s controlling Congress they haven’t had the need to buy gold and silver as an insurance policy.”

KitcoNews