Gold Tumbles As US Vote Count Continues, Oil Recovers

On November 5, gold held losses as oil gained slightly. All that happened as tight races in key battleground states in the United States election left the investors scrambling to determine the changing odds in a fierce battle for the US presidency.

There is an unresolved outcome as a result of considerably large numbers of mail-in ballots due to the coronavirus health crisis. These developments have spurred the market to reassess the possible scale and timing of a much-anticipated and required U.S. fiscal stimulus package; the trajectory taken by the dollar and appetite for risk.

Some time on November 4, Democrat Joe Biden won Wisconsin, according to the data published by Associated Press. Other news channels like NBC and CNN predicted that the democratic nominee beat President Trump in Michigan, giving him a clearer path towards victory.
Copper and gold experienced roller coasters while responding to the movement in the dollar. Interestingly, bullion was seen swinging between a gain of about 0.4% and a loss of 1.4%. At the same time, oil gained as much as 4.2% to reach over $39 per barrel after it fluctuated in an almost $2-a-barrel range for much of the day’s trading session.

Janet Mirasola, managing director at Sucden Futures, said:

“Moving effects on the dollar from the election headlines dictate the movement. I think no one has a clue.”

It Is Not Yet Over
Currently, with millions of ballots still awaiting counting, Trump has already falsely declared that he had won re-election. He even said that he would direct the Supreme Court to intervene. In the meantime, Biden’s campaign said that he was right on track to be the next president of the United States.

So far, results indicate that there might be a smaller Covid-19 relief bill than the roughly $2 trillion that was discussed by the Trump administration together with the congressional Democrats before the November 3 election. The bill will be much smaller with the Democrats facing a narrower majority in the House and long odds for taking the Senate.

With the possibility of a ‘blue wave’ off the table, many bond traders are pricing in less fiscal support which has sent yields reeling. One market strategist at Sprott Asset Management LP, Paul Wong, said by phone:

“From a positioning flow point of view, all the action right now is in the bond market. Gold backing off to me is more of a lack-of-interest type of trade than being bearish. Frankly people probably just have bigger fish to fry.”

The Oil Market
Commodity-market is expected to experience massive volatility if there are any delays to conclusive outcome in the coming days. The markets will remain jittery as investors wait for more clarity. The head of trading at Arion Investment Management Ltd, Darius Tabatabai, said:

“It’s just illiquidity breeding illiquidity and I don’t think that will come back properly until the political situation is resolved. It’s hard to take a long-term view on something that will grind on and on.”

Historically, the stakes have never been this high in a United States presidential election. Whoever ends up as the winner will have an uphill task of leading the country in its fight against COVID-19; which has already claimed over 230,000 lives in the country and dismantled the economy.
Taking everything into context on a global scale, the next president is expected to play a major role in shaping domestic and international efforts against the use of fossil fuels, climate change, and the speed of energy transition.

In that context, crude futures extended their gains after the US government report indicated domestic supplies lost by 8 million barrels in the past week while distillate inventories also declined. However, a gauge of gasoline demand was down by 11% from 2019. The head of global commodity strategy at TD Securities, Bart Melek, stated:

“We can say with a high level of confidence that we’re not getting a massive Blue Wave here. In the event of a split Congress, the status quo essentially means demand improves with the economy because there won’t be any policies to actively dissuade the population and the industry from using hydrocarbons.”

Bjarne Schieldrop, the chief commodities analyst at SEB AB, believes that a Trump win will be bullish for oil since OPEC+ can continue cutting without any fears that Iranian oil supply will get re-introduced into the market any time soon.

Other Commodity Markets
Turning attention to the copper market, investors are keen on looking for any significant clues on the possible path of trade relations between the United States and China throughout the next presidential term. The chief investment officer at Commodities World Capital LLP, Luke Sadrian, said by phone:

“For copper specifically, the future relationship with China will be massively important. My advice would be to sit and wait to see who wins the election, and don’t try to get ahead of it, because everything is so diametrically opposed.”
The soybean futures posted their best day in a month amid growing signs that strong Chinese buying may last into 2021 and investor fears of looming dryness in critical South American producers. Vice president at Price Futures Group in Chicago, Jack Scoville, said by phone:

“Southern areas of Brazil have been very dry, as has northern Argentina, and Uruguay and Paraguay, and in that area, we could lose some yield. That’s something to be watched especially with La Nina.”