(Kitco News) – A closer than expected U.S. election has taken some wind out of gold’s sails, but analysts warn investors not to count the precious metal out just yet as safe-haven demand can still drive prices higher.
According to some political pundits, it could take until the end of the week before the U.S. presidential race is officially called as some states still have to count mail-in and advance ballots.
Political analysts say that it could take time to get the results from Pennsylvania, Michigan, Wisconsin, Georgia.
The gold market appears to be settling in for a contested election as prices pushed off Tuesday’s lows and are hovering around the $1,900 an ounce level. December gold futures last traded at $1,896 an ounce, down 0.75% on the day.
Although gold prices can still move higher, expectations of a surge in momentum have started to disappear, replaced by visions of the status quo. Heading into Tuesday’s election, many analysts were expecting Democrats to ride a blue wave into Washington, taking control of Congress and the White House. Economists were forecasting that Democrats would unleash major stimulus measures to support the economy that has been devastated by the COVID-19 pandemic.
“Hopes of large-scale stimulus under a blue wave now appear to be off the table,” said Paul Ashworth, chief U.S. economist at Capital Economics.
While a contested election is expected to be positive for gold, some analysts say that the market might not see the same time of gains associated with more stimulus measures.
Chantelle Schieven, head of research at Murenbeeld & Associates, said that gold prices stabilizing around $1,900 an ounce is an indication that investors continue to take a wait-and-see approach to the election.
“I think it a question of how contested will this election become. If it comes down to a couple of states and a handful of votes, then we could see the courts get involved, and it could take months to sort everything out,” she said. “That prolonged uncertainty will create some market volatility, and that will be good for gold.”
As to how high gold prices could go in this scenario, Schieven said that she could see prices test the top of their recent ranges, around $1,950 an ounce. Although still bullish, Schieven’s outlook is a far cry from record highs some analysts were expecting with a Democratic victory.
“Gold continues to wait for the much-needed stimulus,” she said. “I think it will eventually come, but it could take longer than investors were expecting.”
Adam Button, chief currency strategist at Forexlive.com agreed that although gold prices should go higher as results are contested, the precious metal really needs new stimulus spending to get back above $2,000 an ounce.
Button added that the best chance gold has to get back to its August highs is if Trump remains president and has to deal with a split Congress.
“If Biden is president, then you could see a Republican Senate push back on major spending. They could starve the economy into a recession.”
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