Trump vs Biden: Election impact on financial markets; what to expect from dollar, rupee, gold

With just a few days to go for the US President elections, Joe Biden seems to have a significant advantage over Donald Trump. A flurry of polls suggests that at this point Biden is leading the pack, according to a report by Motilal Oswal Financial Services. The report highlighted that the coronavirus has realigned voters’ concerns and behaviour. In fact, national polls also suggest that Biden has a significant advantage; on the other hand, a group that helped propel Trump’s victory in 2016 has shown signs of disapproval towards his handling of the pandemic. But that’s not enough to guarantee the Democratic candidate victory.

US election impact on dollar, rupee, gold

Uncertainty around the US election is expected to have an impact on dollar, rupee and gold. History suggests that the dollar has risen once the Presidential election results are announced regardless of who wins. While the momentum in the greenback sustains for a period of three months after the winner is declared. In the recent past Indian rupee has appreciated sharply against the US dollar primarily on back of massive fund flows into India. The report noted that the outcome of the US Presidential election will be important to watch and as per the current scenario the gains for the rupee could remain marginally restricted.

Whosoever wins this election, the result will certainly have an impact on the financial markets as well, along with the dollar. Motilal Oswal believes that the US Fed may control the nation’s monetary policy, but decisions made and policies implemented by the new President will exert considerable influence over the dollar.

A fall in dollar if Biden wins; short-term bounce in case Trump wins

A win for President Trump would trigger a short-term dollar bounce, as concerns of renewed trade conflict would cause nervousness and dollar strength. On the other hand, the brokerage report highlighted that the dollar is likely to fall sooner, and potentially further, if Biden wins the White House and the Democrats gain control of both the House/Senate in Congress. On the domestic front, fund flows will be one of the major triggers to keep rupee gains elevated. Motilal Oswal Financial Services said that at least for the next couple of weeks the rupee (Spot) may quote with a positive bias against the US dollar and on the higher side could test levels of 72.50 and 72.00 and on the lower side could test levels of 74.20 and 74.80.

Besides US election, these factors will support gold

According to a study by Motilal Oswal, gold rallies at the start of the year but it consolidates in the second half of the year to trend lower in November. The report noted that increased debt, excess liquidity, Covid-19 relief bill (if it is not passed until the election), rising COVID-19 cases, central bank policy stance, lower bond yields, trade war uncertainties and other concerns will be very much in place, even after the election is over. “These factors have been in support of the yellow metal (gold) in the past and will be supportive in future too,” it said.  In case Biden wins, there could be a probable increase in corporate taxes, capital gains taxes, and income taxes related to the sale of real estate, which would make stocks and real estate less attractive as investments. This could potentially benefit precious metals, as they are not currently slated for a tax increase.

Even after the US elections, clarity on COVID-19 relief bill and trade uncertainty with China will be important aspects to watch out for. As President Trump has already been negotiating over the past years hence if he is re-elected tensions on that front could increase supporting the gold prices. While Joe Biden’s stance on this topic is not very clear.

Buy gold with dips towards Rs 49500-48500

Apart from the trade war and other factors, even though initial moves of gold could be restricted in a range, yet overall policies that are mentioned by both the leaders are favouring gold prices in the long run. In the short term on the domestic front, dips towards Rs 49500-48500 is a good range to buy with short term upsides being capped around Rs 52200-54,000. “On the longer-term prices front, both the Presidents are likely to benefit gold prices and we continue to maintain our target of Rs 65000-67000 on the domestic front,” it added.