by Bryan Perry

October 27, 2020

Some interesting and eyebrow-raising developments are in the making for the bullish case in gold. Some are short-term and some are longer-term structural developments. A large, short-term catalyst for gold is the prospect of a contested election outcome that drags on for several weeks. There are multiple views being cast about by high-profile investing gurus as to what this scenario might look like.

One notable opinion rendered is that of global veteran investor Mark Mobius, who is hailed by Bloomberg as one of the 50 most influential investors in the markets anywhere in the world today.

A contested outcome in the U.S. presidential election could cause a “dramatic fall” in the stock markets, Mobius warned on October 16 in an interview with CNBC. That would be “a real issue and a real problem,” Mobius told CNBC’s “Street Signs Asia” in response to a question about a disputed election.

I truly hope, as do most voters of either major Party, that Election Week doesn’t turn into Election Month, or worse. The last time there was a contested Presidential election was in 2000, when George W. Bush edged Al Gore after over five weeks of disputed results, in a bitter legal battle only settled by the courts.

In 2000, the market responded negatively as the S&P 500 Index fell 8.4% between election day on Nov. 7 and December 15, the day after Gore conceded in the wake of a Supreme Court ruling that ended the recount. Gore actually won the popular vote but lost the Electoral College vote. Punch card voting ballots were summarily eliminated from the Florida election process and the national election process by 2014.

What’s interesting about the 2000 “hanging chad” election is that Bush and Gore were fairly civil in their decorum to each other and voters didn’t burn downtown city centers. Life went on, as it should.

The 2020 election cycle runs the risk of seeing the final outcome for the Senate and the White House being contested, fueling a disruptive path through some state court systems that could last considerably longer than the five weeks that paralyzed the Bush/Gore election before the Supreme Court ended it.

This time around, the campaign rhetoric is highly charged and vitriolic, but there is a rich history of disputed U.S. campaigns, and there have been at least eight highly contested Presidential elections.

In last week’s column, I noted that a sharp market correction would provide a third great buying opportunity for investors in 2020, but I am also of the view that investors buying and accumulating gold will be less inclined to sell – even if or when the stock market rises again – as I suspect it will.

Thirty Year United States Treasury Bond Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The one-year chart of the 30-year U.S. Treasury Bond (above) shows a technical upside breakout in yield, currently at 1.64% as of last Friday. If the charts don’t lie, then bond yields are going higher. If that is so, then owners of long-date securities and leveraged bond funds could be residing in the house of pain in 2021, and one of the best offsets to rising rates and yields is the yellow metal.

The Fed’s stated policy directive to raise the core inflation rate to 2%, combined with widespread price increases in most commodities (CRB Index Ex-Energy), and skyrocketing government debt loads in developed economies sets the table for a resumption of the bull trend in gold prices.

Commodities Research Bureau Energy Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

One line of thinking that gets broad consensus is that “markets hate uncertainty,” and with the prospect of another major stimulus bill being passed at some point, such a huge amount of debt will very likely take the U.S. dollar down through support levels, thereby adding fuel to the rally in gold.

The Congressional Budget Office stated on September 2, 2020 that Federal debt held by the public is projected to increase to 98% of GDP in 2020 (compared with 79% in 2019 and 35% in 2007, before the start of the last recession). It would exceed 100% in 2021 and rise to 107% in 2023, the highest in the nation’s history (source: www.cbo.gov).

A chart of the U.S. Dollar Index (DXY) that trades against the euro, yen, pound sterling, Swiss franc, and Swedish krona is on the verge of taking out the September 1 low of 91.75, which opens the way lower to major support at 88-90. From there, the next support level is at 80 – where gold would surge higher.

United States Dollar Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The bullish case for gold is very solid. Hyper-debt creation by Congress, coupled with ongoing Fed QE, a resumption of global growth, especially in emerging markets, gradually higher inflation, rising bond yields, and a depreciating dollar only builds further the case for being long gold in part of one’s portfolio.

Whether one buys gold in the form of bars, coins, or tradeable securities is simply one of preference. They are all highly liquid. Gold closed last Friday at $1,905 per troy ounce and off a high near $2,100 August 8. It’s an attractive pullback that precedes a string of scenarios that will make gold a shiny asset in 2021.

Gold Price Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

After nearly three months of consolidation, shares of GLD, hugging the 20-day moving average, look poised to trade to $200 in the next leg higher, implying a near-term return of 12%. Not bad for what looks like a high-probability trade. Longer term depends on managing rising debt versus economic prosperity.

Sounds bullish for gold.

SPDR Gold Shares Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

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Global Mail by Ivan Martchev
Timing the Big Gold Move

Sector Spotlight by Jason Bodner
Your Life’s an Open Book – and so is Big Money Trading

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About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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