2016 has been an exciting year for democracy. With the United Kingdom’s Brexit vote and the election of Donald Trump in the United States, voters have demonstrated their ability to shake up the status quo and make the unexpected reality. However, this year has also shown a darker side of democracy: gridlock. The aftermath of both Brexit and Trump have this in common, and if it continues at this rate there will be an economic impact.
It should not be surprising that when around half of a nation vehemently disagrees with a political outcome bickering and delays will ensue. In the United Kingdom, many are still trying to keep the country connected with Europe as much and for as long as possible. And it seems less likely that the U.K will experience the ‘hard Brexit’ many were promoting.
There is a similar backlash against Trump in the U.S. First, this backlash started off with protests, but now it has evolved calls for a recount - something that could prevent his presidency.
Jill Stein of the U.S Green Party has been joined by Hillary Clinton’s campaign in a push to recount votes in several key battleground states: Michigan, Pennsylvania, and Wisconsin. Some groups are even claiming that votes in these states where manipulated (presumably by the Russian government). This is a problem because Trump won these states by incredibly small margins and Hillary still holds the popular vote.
Trump’s Margins of Victory in Three Contested States:
If these states all swung to Hillary they would give her an extra 46 votes in the electoral college, thus giving her the presidency. There is some possibility the Clinton campaign can pull this off. However, the hypocrisy will be hard to ignore – especially seeing as her campaign spent the three months leading up the election preemptively calling Trump a sore loser and begging him to accept the results if (and ostensibly when) he lost.
What Does This Mean for Gold?
Gold is weaker than it should be in such a politically tense environment. The metal has traditionally traded as a safe heaven, and with global politics so divisive gold should be showing strength. Obviously, if Jill Stein and the Clinton campaign can prove some sort of fraud in Trump’s election the political fallout would be impossible for the markets to ignore.
Such an event would also reverse the correction in the Dollar rally that started after Trump’s election. Sour grapes in the U.S election are a bullish catalyst for gold prices.