(Bloomberg) — Gold is soaring as one of the most closely contested US elections in modern history spurs a rush to haven assets, and many investors see further gains ahead.
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Bullion shot to fresh records this week, and prices are on course for their best year since 1979. Central banks and Chinese buyers initially led the charge, but demand has widened as investors seek protection from market turmoil ahead of next week’s vote. No matter who comes out on top, the rally may well continue.
“Markets like gold in uncertainty, especially when it has to do with geopolitical issues,” said Patrick Fruzzetti, portfolio manager at Rose Advisors in New York. “That’s a reason why you’d want to own gold going into the election.”
Some observers have suggested the margin of victory will be so narrow it will need to be decided by the Supreme Court. Others are doubtful it will come to that, but the neck-and-neck polling has left many expecting a nail-biting count.
Adding to the tension, Donald Trump and his allies are telling supporters they’re on pace for a runaway win. That sets the stage for lengthy legal challenges if the election doesn’t go their way, roiling markets further.
Some investors have bet heavily on a Trump victory and a so-called red sweep of the White House and Congress. Trades tied to his protectionist, pro-growth agenda have buoyed the dollar, which would typically dent gold’s appeal by making it more expensive for buyers using other currencies. Indeed, bullion tumbled back in 2016 when Trump was elected to his first term.
Yet this time around there are much greater concerns around the tightness of the race, and a close result could prompt investors to unwind bets on the greenback and equity markets and flock to haven assets. Spot gold traded near $2,750 an ounce on Friday, rising after US jobs data missed estimates.
Uncertain Outcome
Bullion is set to advance if “it takes time to resolve who the winner is,” said Robert Mullin, portfolio manager at Marathon Resource Advisors. “If it is definitive, you would probably see some risk coming out of the market.”
A victory for Kamala Harris would likely lead to an initial selloff, though the dip would be short-lived, Deutsche Bank analyst Michael Hsueh said in a note. A slide in the dollar resulting from a Harris win could boost buying power in countries such as China and India, while prospects for slower growth may also prompt quicker US interest-rate cuts, buoying gold.