Posted on November 11, 2016
Well, for the time being, the insanity revolving around the 2016 US Presidential Election has subsided. Donald J. Trump emerged as the clear victor on the morning of Wednesday, November 9th. There was no virtual tie, as some had predicted; no lack of 270 votes that throws the election to Congress. Most importantly, there was no contested result on the behalf of the Republican nominee.
However, if you tuned in all night to watch the election, it was far from a smooth ride for the markets and precious metal prices. As the night rolled along, many of the millions of people watching around the world (especially in the US) could see a shocking result starting to emerge on the electoral map. Trump made slow gains in most states, while Clinton quickly captured the vote in most major cities, rural voters and working class Americans in the manufacturing sector (in particular) came out to vote in droves, propelling Trump to victory in key states.
Although few gave him a chance of putting a dent in the so-called Blue Firewall of Pennsylvania, Ohio, Michigan, and Wisconsin, Trump not only dented that wall, he tore it down completely. The masses who felt underrepresented in modern American politics, their concerns left behind, pushed Trump to victory in all four states of the Blue Firewall.
Throughout the evening, the markets and prices for precious metals reacted in kind to the shock playing out on the US electoral map. Below we recap the events of the evening and how things have played out in the days since the election was called in favor of President-elect Donald Trump.
As election results slowly started to trickle in, there was little concern early as Trump took a 24 to 3 lead in electoral votes on the strength of a number of small states in the South. Clinton’s strongholds were expected to be the Blue Firewall and the West Coast. Things started to get interesting as the eyes of the nation turned to Florida.
A state that was leaning toward Clinton early as the counties containing Miami, Tampa Bay, Orlando, Tallahassee, and Gainesville reported in, the market started to show jitters as Trump closed the gap and eventually moved ahead of Clinton by a nose as more and more rural parts of Florida reported vote totals. However, panic didn’t set in until the same thing began to happen in North Carolina, Pennsylvania, and Ohio.
As Trump pulled ahead in these battleground states, most of which Clinton was expected to win, gold began to surge. Nervous investors pushed the price of gold up 4% on election night to $1,316 an ounce. That marked the biggest jump for gold since the results of Brexit emerged this summer.
Gold was propelled higher because investors were bailing on global stocks in just about every market around the world. Particularly hard hit was the Mexican peso, which fell to its lowest level in over seven years. The Mexican economy is viewed as one of the most vulnerable under a Trump presidency because it is extremely dependent upon the US, and Trump has indicated that cutting or dialing back economic ties with Mexico would be a big part of his agenda.
The price of gold wasn’t the only factor going crazy on election night. At the same time that gold was skyrocketing, Dow Jones Industrial Average futures fell 750 points at one point during the night. The S&P 500 futures fell 97.25 points, and the Nasdaq futures also dropped 220 points. Worse for the market, and great for gold, the US Dollar slumped 3% against the Yen and was down 1.7% in the ICE US Dollar Index, which measures the dollar’s strength against a basket of six rival currencies.
Adding to investor misery in an industry that is already suffering a sustained downturn, crude oil struggled on the night as well. West Texas Intermediate crude fell 3.3% to $43.51 a barrel. However, the next morning the sun did indeed rise on the markets, which was bad news for gold.
When the world woke up Wednesday, November 9th, millions were still trying to process the “yuuuge” win of Donald J. Trump and the shockwave it had sent across markets and the American psyche. The general consensus heading into the election was that a Trump victory could lead to dramatic uncertainty, and if there’s one thing the market hates (and gold loves), it’s uncertainty.
Well, just like the unexpected happened on election night, the unexpected repeated itself when the markets opened on Wednesday. Despite the deep losses on futures overnight, all three major indices in the US surged on Wednesday. The Dow jumped 1.4% to finish the day at 18,589,69, which is just a quarter-percent below its all-time high from August of this year. The S&P 500 rose 1.11% to 2,163.26, and the Nasdaq also added 1.11% to finish as 5,251.07.
Trade volume in the markets was the highest it’s been since the Brexit vote in June, and the market rebounded strongly at home and abroad as the concept of a Trump presidency set in. There were very specific changes however that came to the market, with various sectors Trump mentioned throughout his campaign reacting differently.
For example, the healthcare industry was down drastically as one of Trump’s main promises is to “repeal and replace” Obamacare. This left the healthcare industry reeling as hospitals and medical providers wait to see what will happen to all of their newly insured patients. Conversely, the construction and manufacturing sectors saw gains as another key tenet of a Trump presidency is the investment of significant funds in improving America’s infrastructure, which would result in massive influxes of cash to those industries.
Overnight as a Trump victory became inevitable, gold briefly touched $1,337.40 per ounce, a nearly 5% gain. However, by Wednesday evening gold had tumbled back down below $1,280 per ounce as the US stock market rebounded (as mentioned above), the dollar edged higher, and U.S. Treasury debt yields reached highs not seen in months.
The story played out differently across the futures market for all four major precious metals. Gold futures for December delivery finished Wednesday down 0.4% after trading between $1,268.10 and $1,338.30. Platinum for January delivery lost $5.30 (0.5%) to $1,003.30 per ounce after trading between $995.70 and $1,023. Palladium for December delivery however was up $15.95 (2.4%) to $681.45 per ounce after ranging from $652 to $684.65. Silver for December delivery was also up, adding 2.2 cents (0.1%) to finish at $18.378 per ounce. Silver futures continue trading higher, between $18.27 and $19.
Investors should continue to expect the unexpected in the coming 10 weeks as the nation moves toward President-elect Donald Trump’s inauguration on January 20, 2017. One of the most poignant quotes about the market and gold prices floating around at the moment came from Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma:
“The stock market is acting like a teenager. It makes a lot of demands but it doesn’t know what it wants.”
Most likely you can expect to see continued volatility in the coming weeks, and even into mid 2017 as the markets and the world try to get a grip on what a Donald Trump presidency is going to look like for the world.