Gold Prices Drop as Dollar and Stock Prices Rally

Predictions of an election victory for Hillary Clinton prompted rally of major market indices

Gold prices fell on Monday, November 7th, 2016, after dollar and stocks rallied on news that Democratic Presidential candidate Hillary Clinton would not face criminal charges related to her use of a private email server, thereby strengthening her chances of winning the U.S. presidential election, as reported by Reuters. Spot gold was down 1.5% at $1,284.56 an ounce, after hitting a low of $1,283.12 earlier in the session. U.S. gold futures fell 1.5% to $1,285.1 during the day. Gold gained more than 2% last week after the FBI said on October 28th, 2016, that it was looking into new emails that may be connected to Clinton. The election was held on Tuesday, November 8th, 2016, and results will be out on Wednesday.

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The latest polls published on Sunday, November 6th, 2016, show that Clinton in the lead over Republican candidate Donald Trump. A rise in the greenback makes dollar-denominated gold cheaper for holders of other currencies; a relationship used by funds and short-term traders to generate buy and sell signals. The downtrend in gold prices had a domino effect on prices of other precious metals; silver was down 1.1% at $18.18 an ounce, while platinum fell 0.7% to $988.80. Palladium ceded 0.4% to $621.22 an ounce on November 7th, 2016.

Whichever way the election outcome swings, market experts predict that gold is certainly seen to be a winner, with prices of the precious metal predicted to reach levels not seen since 2013. Gold prices are predicted to rise to over $1,500 per ounce from the current $1,284 per ounce by the end of December 2016, prodded by policy uncertainty and the prospect of rising inflation.

Gold is seen as a hedge against political uncertainty, particularly over the U.S. Federal Reserve’s leadership and monetary policy strategies. Historically, market observers tracking the gold-price swings that followed the 22 presidential elections since 1928 opine that gold prices have tended to fall when there is no change in administration.

Dollar rallies against basket of major currencies

The U.S. currency rose as much as 1.5% to within 0.6% of the 105.25-yen level on November 7th, 2016, after Hillary Clinton got a reprieve that she would not face criminal charges related to her use of a private e-mail server. It had declined to 102.550 against the Japanese currency last week as polls showed a tightening U.S. presidential race. Currency forecasters predict that the U.S. dollar would breach the 100-yen level within 24 hours of a Clinton victory, while a majority said that the dollar would tumble through 100-yen if Trump won.

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The greenback rebounded 0.6% against a basket of major currencies after plunging last week when the FBI said it was looking at another large batch of emails, strengthening the chances of a victory for Donald Trump, an outcome that is likely to trigger market turmoil.

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Investors are now more confident of a victory for Clinton, who is seen as the status quo candidate. Prediction markets are giving Trump around a 1 in 5 chance of victory, down from 1 in 3 at one point last week. Also helping the dollar rebound are expectations that the U.S. Federal Reserve will raise rates in December 2016, reinforced by strong jobs growth in recent months. Data compiled by Bloomberg based on fed funds futures trading show an 82% probability of higher borrowing costs by year end, up from 76% on Friday, November 4th, 2016.

Stock market record biggest gains in weeks

Predictions of a highly probable election victory for Hillary Clinton have also resulted in strong rally of major market indices, ending a nine-day losing streak. The Dow Jones industrial average jumped by 371 points, or 2.08%, with the tech stock-heavy NASDAQ index gained almost 2.5%, as investors piled back into shares. The S&P 500 Index rallied 2.2% to 2,131.37, erasing its November losses. The measure of market turbulence known as the VIX slid almost 16%, posting its biggest one-day fall in over four months, after surging 39% last week.

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