Gold and Direxion Shares Exchange Traded Fund (NYSEARCA:NUGT) lost its safe-haven appeal earlier this week after the first presidential debate between Donald Trump and Hillary Clinton. However, the gold is falling lower in today’s session as investors look forward to Federal Reserve Chairwoman Janet Yellen’s testimony at house hearing in order to get a sense of direction on the economic outlook
The U.S. Presidential election is one of the major factors influencing the price of the yellow metal. However, the outcome of the presidential election has provided a sense of direction on how the election is likely to turn out and on how gold is likely to trade going forward.
U.S. equities have been struggling in the last couple of months as the elections draw nears because the electorate must pick between “the lesser of two evils”. Nonetheless, from an economic standpoint, the emergence of Donald Trump might plunge the economy into a deep abyss because of his rash, controversial, and propensity to stir up the proverbial hornet nest.
Interestingly, Trump seems to have a strong following in the core Republican base. More so, the controversies surrounding Hillary’s tenure as Secretary of State doesn’t exactly endear her to swing states and “undecided” voters. Hence, investors have been seeking refuge in the safe haven that gold provides in order to hedge against uncertainty if Trump emerges as POTUS.
The first debates provides ray of hope to lift stocks and sink gold
All sentiments aside, it is obvious that Hillary Clinton skinned Donald Trump during the first presidential debate. The fact that Clinton got the upper hand has caused Wall Street to breathe a sigh of relief because investors consider Clinton to be the more levelheaded of the two candidates. Hence, it wasn’t surprising that the outcome of the debate caused gold and Direxion Shares Exchange Traded Fund (NYSEARCA:NUGT) to lose the safe haven appeal that has lifted prices in the last couple of months.
Yesterday, spot gold was down as much as 0.8% to end the session at $1,327.46 an ounce and U.S. gold was down a full 1% to end the session at $1,330.40. More so, the Direxion Shares Exchange Traded Fund lost 5.37% to end the session at $18.68 and the ETF has lost another 2.30% in pre-market trading this morning. In contrast, the S&P 500 was up 0.64%, the Dow Jones was up 0.74%, and the NASDAQ was up 0.92%.
Charalambos Pissouros, senior analyst with IronFX Global notes that “the pattern suggests that investors view [Democratic nominee Hillary] Clinton winning the election as a risk-on development, while a potential [Republican Donald] Trump win could lead to an environment of risk aversion.” More so, ABN AMRO commodity strategist Georgette Boele notes that “the general sentiment in the market is not supportive for gold; it’s deteriorated somewhat. The stronger dollar is also not helping.”
It is not over for gold yet
The fact that Clinton won the first debate is good for equities and bad for gold and Direxion Shares Exchange Traded Fund (NYSEARCA:NUGT). Nonetheless, investors must not forget that winning a debate doesn’t necessarily translate into an electoral victory. Hence, the dynamics of the electoral pulse might change at a moment’s notice to trigger another round of uncertainty and volatility in the markets.
Investors should know that the debate has only given Clinton better odds of winning the election based on electoral sentiments. Nonetheless, the gap between the candidates is still very slim and the simple misstep from the Clinton camp can turn the odds against her.
More so, the upcoming election is just one of the many factors that could influence gold prices. David Govett, head of precious metals at Marex Spectron notes that “Gold slipped back slightly on the back of that but this story is far from over.”