GOLD AND THE ELECTION

 

The Fed has confirmed its widely anticipated pivot.  Still, big positive news for gold and all commodities priced in dollars.  

Some technical models call for gold to have one more big dive before it takes off to $3000 and beyond.  But technical models are just that: models.  They don't take into account facts on the ground like two hot wars that could  blow up at any time, a risk asset bubble that could blow at any time (think the yen carry trade), and and US election that could blow up in any number of ways.

So - the election.

We must take the candidates at their word and the their record at this point.  So there are three possible countcomes.  However, to me they appear to be all extremely positive for gold.

A) Republican candidate wins.  He has pledged Massive Tarrifs and trade wars and he has also pledged to take control of interest rates - which means take them back to zero.  His background is real estate.  Real Estate thrives on zero rates.  Unfortunately everything else but hard hard assets suffers tremendously from zero rates which destroys the dollar and creates massive inflation.

The tarrifs have an historical antecedent: the Smoot Hawley Tarrif act of 1930, which is largely credited with turning a recession into a depression. It also caused Global Trade to plunge by 52 percent.  Think of this as Smoot Hawely on steroids.  Smoot Hawley was enacted  just after a massive risk asset bubble popped.  Ours has not yet popped.  But it is a larger bubble, and if the employment revisions and the debt levels are any indication - it is not far from popping.  So I can't think of anything tarrifs would be good for besides GOLD.

B) the Democrat wins.  They will fight inflation with possible price controls - which have a historical antecedent: Nixon's economic stabilization act of 1970 which had a chilling effect on the economy causing affected businesses to pull back heavily on production.  The other ideas of the Democratic party all involve printing more money to help more people.  While this is not as disastrous as the current Republican ideas it still leads to the ever continuing destruction of the value of the US dollar.  In other words - the status quo.  Excellent for Gold.

C) The Republicans lose and then repeats their behaviors from the last election and calls for civil war.  This can not be discounted.  In fact it seems likely.  Especially since if they lose the republican candidate is facing jail time.  Whatever the result of this you can bet heavily it will create a domestic panic into GOLD.

So - it's tough to see how Gold doesn't thrive in this environment.

DEVIL'S ADVOCATE;  What would be bad for gold?

A political candidate comes along and says: "We have been living far beyond our means on borrowed money - as a Government - as industry - as individuals.

"We must tighten out belts, stop borrowing, live within our means, and let spendthrifts go bankrupt. Rates will have to be set by the market so they will remain permanently above the real rate of inflation.  That's where they naturally belong in a real free market economy.  This will be very painful for the next 5 to 10 years: many banks will go under.  Many businesses will go under.  But it will leave our children a much better economy, after a period of sensible restructuring, hence a better world.   Isn't that worth it - for our children's sake."

HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA

Don't hold your breath.

Buy Gold.