There is little I can add in the way of insight into the political outcome for today's general election, but we can look at the way the chips are stacked for some insight into the potential market reactions.
Hillary Clinton's odds for victory look to be anywhere between 70 and 84 percent, depending on which poll aggregator model you use. Most Wall Street polls I have seen skew toward the higher end of that, though there is some innate selection bias.
Generally, as we look to gold prices, the last few weeks' pattern is a reasonable indication that you can expect metals/vols higher in event of a Donald Trump surprise and metals/vols lower with a Clinton win. I'll leave other macro commentary to other experts.
Given the (mostly) binary outcome of an election, we'll instead this week look at what support and resistance there is, as the classic bull/bear analysis is pretty much useless:
Support (upside pressure or putting a support under downside)
- CFTC positioning actually shows less net spec gold length going into this v. Brexit by about 8mm oz. Recent shorts will be very quick to cover if Trump camp picks up momentum.
- Gold vols are significantly lower than they were in the run-up to Brexit, but call skew is about the same. Traders buying less vol ahead of this event.
- The upward-sloping 200 DMA has been incredibly stout technical support, and we are sitting right on top of it at $1,280 currently.
- Likely a fair chunk of money looking to shore up gold length in event of a drop. A move towards $1,250 might incite some further investment purchases.
- I think big, institutional money is perhaps underweighting probability of Trump win, if just by a few points. They may have taken a pass on paying up for insurance (as vols show) as many fund managers have never known a real Trump supporter.
Resistance (either further downside pressure or capping an upside move)
- GLD ETF holdings are actually higher (only 500K oz or so), and many of those extra longs are out of the money, given the decrease in spot prices over that period.
- Interest rates are generally higher across the board, especially versus the July lows. Global aggregated weighted YTM is 1.52 percent.
- Global negative-yielding debt down to right about $10 trillion in notional, according to Bloomberg.
- December hike is happening. USD still in the ballpark (about 2 percent) of multiyear highs.
- 50 DMA has been a reasonable mean reversion since mid-August and is currently downward sloping at $1,297.
- OTC swap rates are steep versus historical rates. The regulatory quagmire makes for messy analysis, but have to assume some if it at least driven by higher levels of spot length.
- Not Brexit: We know what a presidential and legislative election mean. Brexiteers largely didn't actually know what happens when a symbolic protest vote passes. We have better polling and better polling aggregation, and the polls themselves are not as close.
Chart 1
Net length lower now v. pre-Brexit, with more shorts. In mm of oz, this is about an 8mm drop, which leaves plenty of room for further upside just back to record levels and we remain even 6mm oz below the net positioning.
Chart 2
Buying less insurance. 1M implied volatility for both gold and SPX actually lower this time around versus Brexit. You don't need to know Black-Scholes, just that basic supply-demand has the most intrinsic pricing of volatility lower this time (white line current SPX and green line current gold) v. pre-Brexit. That leaves room for more surprise and crazier outcomes if it does occur.
Coin Toss
The risk of a larger move is to the upside in event of a Trump surprise or at least head fake. Among early states, Ohio, Florida and North Carolina pretty much all three have to go his way, and even then it's a long road. I think weighted probability outcomes still point to lower gold.
