A Week Of Change

What a difference a week can make! After reaching an all-time high of USD $2483/oz last week, gold has retraced significantly to the $2400 level, despite the announcement that Joe Biden has pulled out of the US presidential race, pitting Donald Trump against Kamala Harris (read more below). Silver followed gold’s lead and is currently resting around $29/oz, demonstrating its volatility both to the upside and downside in recent weeks.

Money is moving. Investors rotated capital out of technology stocks last week into segments of the market that should benefit from anticipated future Federal Reserve rate changes (gold did benefit from some of this movement). The market’s conviction regarding a Federal Reserve rate cut in September has grown substantially due to tamer inflation numbers. 

Trump vs. Harris: What does it mean for gold? Biden announcing that he dropped out of the presidential race after weeks of pressure did not come as a big surprise. Biden quickly endorsed Vice President Harris and says he intends to serve out his full term as president. Harris, for her part, said that she plans to win the Democratic nomination and has received some heavyweight endorsements in the days since Biden suspended his re-election campaign.

Prior to Biden dropping out, sentiment was that Trump was pretty much guaranteed to win the presidency. Biden’s announcement should soften ‘typical Trump trades’ (e.g., lower gold, lower Bitcoin, stronger US Dollar). News that Biden is out has reduced the odds of a “red wave” sweep and increased the odds of a gridlock, which is a better outcome for bonds and risk assets. Both markets would love to see some checks and balances and someone talking about fiscal responsibility. Gold, however, would not necessarily flourish in an environment of fiscal responsibility, as the prospect of fiscal ‘irresponsibility’ under a Republican sweep has helped propel the yellow metal to new all-time highs this year.

My personal prediction is that we will see a fair amount of volatility leading up to the election and a further hike in volatility if Trump does win, as a result of major political and fiscal policy changes that will follow.

Sources: Peapack Private Bank, MKS PAMP