Futures File: Election Day could shock markets; another gas pipeline shutdown
November 4, 2016
Election Presents Golden Opportunity
As Election Day nears, markets are on edge, as there is increasing uncertainty about Tuesday's results. Polls are suggesting more than a dozen states could be in play this year for the presidential race, while numerous Senate races are hotly contested, leaving the balance of power there up for grabs as well.
Worries about the future direction of taxes, spending, trade and other policies has led investors to pull out of stocks in favor of gold and silver, which many perceive as a safer investment in times of trouble.
Furthermore, both candidates are proposing policies that continue increasing the government's debt beyond $20 trillion, according to the nonpartisan Committee for a Responsible Federal Budget. Should the debt continue to rise, traders fear inflation could be close behind. These concerns have helped rally gold over the last month, topping $1,305 per ounce on Friday.
In a worst-case scenario, in which the election results are unclear or disputed, political and economic turmoil could ensue, a situation that might cause a further run-up in precious metals.
If the voters clearly select split government, however, with one party holding the presidency and another controlling Congress, the candidates' big plans could be stymied, tarnishing the metals' rally.
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Pipeline Explodes, Prices Boom and Bust
A major U.S. gasoline pipeline exploded Monday, cutting off fuel supplies, which sent shockwaves through the futures markets.
The Colonial Pipeline, which supplies nearly 40 percent of the East Coast's fuel, was shut down after a repair crew hit the pipeline with an excavator, sparking a fire and explosion. A nearby section of the pipeline was leaking in September, prompting closures that spiked gasoline prices across the East Coast.
When news of the explosion hit the market, gasoline futures initially spiked by 21 cents per gallon, a near-instantaneous 15 percent gain.
But, as repair crews assessed the situation, it appeared that the pipeline would be re-opened over the weekend, restoring fuel to the East Coast, bringing relief to drivers and dashing investors' hopes for a longer-term gain.
By midday Friday, prices were back below the pre-explosion level, with December gasoline futures trading for $1.38 per gallon, a price that excludes taxes and other expenses.
Opinions are solely the writers'. Walt and Alex Breitinger are commodity futures brokers with Paragon Investments in Silver Lake, Kan. This is not a solicitation of any order to buy or sell any market.