Trump As Presumptive GOP Nominee And Gold

May 6, 2016

Both Ted Cruz and John Kasich dropped out of the presidential race this week. What does it mean for the gold market?

On Tuesday night, Ted Cruz suspended his campaign. The reason was Trump’s spectacular victory in Indiana. The billionaire took all 57 delegates. On Wednesday, John Kasich also decided to end his GOP presidential run. The truth is that he never had any chances to win. He just wanted to prevent Trump from winning 1,237 delegates before the Republican convention.

Therefore, the contest is over – Trump became the presumptive GOP nominee. The businessman is now forming his vice presidential selection committee. However, the Republican leaders have not yet decided whether to support Trump in the general election. Given the course of Democratic primaries, a general election matchup between Trump and Clinton is almost certain.

What about Trump’s victory and gold? Trump’s victory in the GOP primaries should be positive for the yellow metal as his presumptive nomination increases uncertainty among investors who do not know what to expect of Trump. Thus, gold should gain as a safe-haven asset. Moreover, he proclaimed himself as a “low-interest rate person”, who sees “major problems” with the strong greenback. Such declarations should raise uneasiness among investors. Some analysts have even recently noticed a correlation between gold futures prices and Trump’s primary results.

However, the shiny metal lost steam yesterday, despite good news for the controversial billionaire. It means that the price of gold is affected more by the Fed’s monetary policy, real interest rates and the U.S. dollar than by political events. Elections are in November, so there is still some time before them. And Hillary Clinton leads the polls by almost 10 percentage points.

Summing up, Trump became the presumptive GOP nominee. Theoretically, it should be generally positive for the gold market, but we did not see any strong upward move. Actually, the yellow metal lost steam after it reached $1,300 this week. It suggests that, just like with geopolitics, political events are not as strong drivers of gold prices as the U.S. dollar or real interest rates.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium-term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Arkadiusz Sieron

Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Arkadiusz Sieroń is the author of Sunshine Profits’ monthly gold Market Overview report, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes. Arkadiusz is a certified Investment Adviser, a long-time precious metals market enthusiast and a Ph.D. candidate. He is also a Laureate of the 6th International Vernon Smith Prize.  You can reach Arkadiusz at Sunshine Profits’ contact page.

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78 percent of the yearly gold supply is made into jewelry.

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