Gold and Silver may gain further appeal as chaos hedge

As the criminal conviction of former President Donald Trump dominates the news cycle, investors have to be asking themselves whether the upcoming election will be anything like normal.

A potential crisis of legitimacy for America’s electoral system looms. That could bring with it a loss of confidence in U.S. financial markets and the U.S. dollar itself.

The media is aghast that Trump’s legal troubles have failed to dampen his appeal to voters. In fact, Trump holds a polling lead over struggling incumbent Joe Biden in most swing states.  

Were the election to be held today, the final outcome would likely to be too close to and too bitterly contested to convince backers of the defeated candidate to accept the winner’s victory. 

Trump supporters say the Democrat-controlled New York criminal justice system is trying to single-handedly decide the election for the entire country.  It’s possible that Trump could be prevented from holding campaign rallies because he is placed under house arrest or even confined inside a jail cell.

Meanwhile, Trump made an unusual campaign stop last week, delivering a speech before the Libertarian Party national convention. In seeking the support of this faction of the liberty movement, he declared that being politically persecuted by forces within the government have made him more of a libertarian than ever before. Trump vowed to uproot the deep state, bring down inflation, protect cryptocurrency holders, and prevent the Federal Reserve from issuing a central bank digital currency.

His remarks were interrupted by chants of “end the Fed.”

It’s not clear whether another Trump administration will result in any fundamental changes in fiscal or monetary policy. In his first term, he rarely used his veto power to push back against deficit spending by Congress. And despite some attempts to point the central bank in a different direction, he appointed establishment insider Jerome Powell to be Fed chairman – a hiring decision among many others that he later came to regret.

Sound money advocates will certainly aim to gain some influence in a Trump administration. A few Trump allies in Congress are proponents of gold and silver as money. Trump himself is known to be personally fond of gold and may be receptive to concerns such as eliminating the punitive “collectibles” tax on bullion.

As to how gold and silver prices might respond to the election results, it’s difficult to predict given how close and unpredictable the election itself is shaping up to be.

Stock market investors may have more to worry about. Wall Street hates uncertainty.

A Constitutional crisis surrounding the election is quite possible, as is social unrest and possibly even martial law. If the election results are in dispute and the peaceful transfer of power is in doubt, then the stock market could gyrate violently to the downside.   

In such a scenario, precious metals could gain safe-haven appeal. Longer term, gold and silver prices can be expected to rise as a reflection of ongoing currency depreciation.

Neither Joe Biden nor Donald Trump have submitted any credible plans to balance the budget. But it is possible that in the event of a Trump victory, optimism about a change in course from Bidenomics could cause investment demand for bullion to decrease in the near term.

Renewed investor interest in gold so far this year has helped propel the monetary metal to record highs. Gold is trading slightly off those highs here in this final trading day of May, coming in at $2,355.

Turning to silver, it has been outperforming gold in recent weeks. As a result, the gold to silver has narrowed to a 3-year low. Silver prices are trading near $31.40 per ounce.

This week, UBS raised its price target for silver to $36 by the end of the year. The Swiss investment bank cited an expected 9% surge in industrial demand for silver, led by the photovoltaic sector. At the same time, global mining output is expected to suffer a small decline, exacerbating a chronic supply deficit for the metal.

Recent reports out of China suggest silver inventories there are being rapidly depleted as the country ramps up production of solar panels. Silver is a critical component of solar and other electricity generating infrastructure. 

Silver along with gold are also critical components of an inflation protection strategy for investors.