Is Trump or Biden a win for commodities?

Singapore

HARD commodities are set for a strong ride if a "blue wave" plays out and Joe Biden wins the United States presidency. But a victory for incumbent US President Donald Trump is not bad news either, say experts.

This is mostly because commodity prices will also be held up by super-low interest rates, trillions in US fiscal stimulus and growing vaccine optimism. Recovering pandemic-struck economies, rising demand from China and supportive demand-supply dynamics are expected to add more cheer.

"No matter the outcome of the election, we forecast higher commodity prices in general for 2021," said Denmark-based Ole Hansen, Saxo Markets' global head of commodity strategy.

Mr Hansen cited "rock bottom" interest rates, central banks' commitment to ramp up inflation, and a "macroeconomic tailwind with the prospect for a weaker (US) dollar" as creating a "near-perfect backdrop for commodities, especially those with tight supply, to rally further".

"Bidenomics" could sweeten prospects, given the Democrat candidate's expansive fiscal policies.

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Union Bancaire Privée (UBP) global head of forex strategy Peter Kinsella said: "The main factor to watch is whether the Democrats gain control of both chambers of Congress. If they do, this will be a strong signal for commodity markets, because it means that they can push through infrastructure spending measures easily."

Industrial metals: Riding Biden's mettle

A Biden win would be good for fuel, industrial metals - such as iron ore, copper, zinc and aluminium - as well as silver. All are driven by industrial demand, which should revive on consumer-focused stimulus and accelerated infrastructure investment, including in green technology.

A second term for Mr Trump is not something to scoff at. But given his "big and bold" infrastructure plan lacks details, his opponent's plan looks a lot sexier.

Mr Biden's "less 'shoot from the hip' approach to trade and tariffs, could also provide a wider boost to industrial metal demand", said Mizuho Bank's head of economics and strategy Vishnu Varathan. He expects a Biden victory and an ensuing detailed infrastructure plan to push prices of industrial metals by a "durable" 5-10 per cent.

This is provided there is a clear win. If the results are disputed, a growing worry, it could trigger a sell-off in base metals on risk aversion. This would in turn be bullish for traditional safe-haven precious metals, gold and silver.

Even then, Toronto-based Bart Melek, global head of commodity strategy at TD Securities, expects calm to eventually prevail.

"It should be noted that preelection market mayhem does not last much beyond after a new administration is formed, at which point only the winner's policies ultimately have a long-lasting impact on equities, gold and other commodity markets," he said.

Gold: Shining brighter for Trump

A presidential win by either party could be good for gold bulls, but Mr Trump appears to have a slight edge.

The yellow metal has had a remarkable year so far. Prices peaked at a record US$2,075 an ounce in August. They have come off since to around US$1,899 an ounce, but are still up 28 per cent from a year ago.

The rally has been fuelled by US fiscal and monetary stimulus and already-low interest rates, leading to US dollar devaluation fears and fixed income assets recording negative real yields. A Trump win could keep that rally going, as he has pushed for the US Federal Reserve to ease policy.

UBP's Mr Kinsella said having Mr Biden in the White House would likely also mean pressure to maintain a loose monetary policy stance.

But another four years of Mr Trump could keep geopolitical risks elevated, he added. This could spark a flight to safety.

While expectations of a tougher tax and regulatory regime under Mr Biden could also lead to a similar flight, most analysts do not expect him to walk the talk on this in the short term, as it would be counterproductive in a deep recession.

But some pundits also think a blue wave will have a bigger impact on the yellow metal. FXTM market analyst Han Tan said gold could "move substantially closer" to the US$2,000 an ounce level as the Democrats' larger proposed stimulus package might mean greater inflationary pressures. Gold is a favourite inflation hedge.

There are two sides to this gold coin, though. Higher government spending plan might also mean higher Treasury yields, which would diminish the allure of zero-yielding assets such as gold and silver. "So, precious metals will shine better with Trump than Biden," said Mr Varathan.

It is a view shared by Axi's market strategist Stephen Innes: "(A) blue wave could lead to a massive fixed income sell-off and an explosion higher in the US yields. That's why I am guarded on gold."

Silver: Stuck on Biden

Like gold, silver has had a remarkable streak this year, with prices up 36 per cent, driven by both investment and industrial demand.

"Silver does well when there is a favourable environment for gold. It has a historical volatility double that of gold," said TD's Mr Melek. Mr Biden's green stimulus could be particularly positive for silver, which is used in solar panels and electrical circuits.

Even so, Julius Baer's head of economics and next generation research Norbert Rücker tamped down the excitement, saying: "We do not believe this will lastingly impact silver prices. Any upside should be primarily sentiment-related and is unlikely to last given the boom-and-bust nature of the silver market."

Oil: You got a friend in Trump

Crude has spent much of this year in the doldrums due to a pandemic-led demand shock and a supply glut, worsened by a price war among major producers. It is unclear who is better for oil bulls. Both candidates have different energy policies.

If Mr Biden wins, his US$2 trillion infrastructure agenda could boost industrial demand and lift crude prices. If he moves to curb US shale oil and gas production, the lower supply would also support prices.

But Mizuho's Mr Varathan noted that Mr Biden's plan includes investments in green energy - think electric cars - which could dampen longer-term oil demand as alternative fuel becomes more viable.

S&P Global Platts' head of Asia global demand and risk analytics Kang Wu said that US foreign policy on Iran would have significant impact on the near-term direction of oil.

The Trump administration's economic sanctions have crippled Iran oil exports. A more reconciliatory stance with Iran under Mr Biden's leadership, which could bring an estimated two million barrels per day of Iranian oil back to the market, may dampen oil's widely-expected recovery in 2021 to above US$50 a barrel. (Brent, the global benchmark crude, is expected to average US$42 per barrel in the fourth quarter of this year).

Mr Kang added: "The resumption of nuclear negotiations with Iran are possible under both a second Trump administration and a Biden administration. However, under a Trump administration, there are lower odds of sanctions relief."

Meanwhile, a spike in global Covid-19 cases could stall a demand recovery for oil. "While Trump loves oil, his actions will help keep oversupply concerns alive and that will prevent oil prices from rallying," said Edward Moya, senior market analyst at Oanda.

But he is confident that oil prices will recover next year on a distribution of Covid-19 vaccines and a return to pre-pandemic behaviour.

Putting things in context is Jeffrey Halley, senior market analyst of Asia-Pacific at Oanda: "Oil's story is a Covid-19 one and not a presidential one. If vaccines do not arrive, if distribution is slow, and if air travel remains closed, oil will be unable to sustain a meaningful rally, hobbled by the demand side of the equation.