2020 US Elections: Race remains open, stocks and gold to suffer the uncertainty

There is a growing chance that America will know who the president is only in late November. The tense period could be dollar-positive before unwinding once the results are clear. Gold depends on fiscal stimulus, which would come in a Biden landslide or a Trump win, while a change in the White House without one in Congress would be adverse for the precious metal yet positive for stocks, FXStreet’s analyst Yohay Elam briefs.

Key quotes

“In case both Biden and Trump claim victory, courts would become overwhelmed with lawsuits in all contested states with markets suffering from their worst enemy – uncertainty. Stocks would tumble amid the ongoing political paralysis as the clock ticks down toward January 20 – inauguration day. A growingly divided nation poses a risk to the economy and would send stocks tumbling down. Gold will also probably follow equities lower. The greenback and also the yen would likely be the biggest beneficiaries in this scenario. Given a close race, there is a high probability of this outcome materializes.”

“Biden winning and republicans holding Senate is probably the most likely scenario given current opinion polls and could unfold once all votes are counted and accepted. In this case, shares have room to enjoy a relief rally as Biden would pursue more trade-friendly policies while those to his left would be unable to enact their agenda. The safe-haven dollar would likely lose its shine – especially if this result is reached after several tense weeks – while gold would have limited room for relief. The lack of new fiscal relief means less money to fund the precious metal's rally.” 

“In case Biden wins the presidency and Democrats flip the Senate – they are projected to hold onto the House easily – stocks would also fall. The reason is that markets would fear that left-leaning lawmakers such as Elisabeth Warren, Bernie Sanders and Alexandra Ocasio Cortez would push for regulation and tax hikes. Meanwhile, gold would cheer the prospects of massive fiscal stimulus, especially if Democrats approve a broad ‘Green New Deal’ to fight climate change. The mix of cash from the government and the Federal Reserve would likely send XAU/USD higher. The US dollar would drop in this scenario of massive spending. This scenario has a medium probability, as the battle for the Senate is close.”

“In case the president repeats his 2016 victory stocks would rise – markets like the status quo, which is business-friendly. It could also turn positive for gold, as Trump would feel reinvigorated to push his fellow Republicans to provide further fiscal stimulus after receiving a mandate from the people. For the dollar, it would be adverse, as fears would subside. Once again, the greenback's decline would be from the higher ground if the process takes a long time. The probability is low as Trump is trailing in the polls.”

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