This week, Nancy Pelosi announced that the House would launch a formal impeachment inquiry. Is it a well-grounded argument, publicity stunt or reflection of the growing polarization inside the Democratic party? Storm in a tea cup or not, should Trump be worried? And gold?
What's This All About?
On Tuesday, Nancy Pelosi, House Speaker, announced that "the House of Representatives is moving forward with an official impeachment inquiry." That's a big shift among Democrats, who control the House. They were talking about the Trump impeachment for months and for a variety of reasons, but never launched the process. What changed their minds?
The impeachment inquiry is a response to revelations that President Donald Trump allegedly pressured the Ukrainian president to investigate the potential 2020 Democratic candidate Joe Biden and his son, Hunter. According to the White House summary of a 30-minute July 25 phone conversation between U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskiy, Trump said:
there's a lot of talk about Biden's son, that Biden stopped the prosecution and a lot of people want to find out about that so whatever you can do with the Attorney General would be great. Biden went around bragging that he stopped the prosecution so if you can look into it... It sounds horrible to me.
For us, it does not sound malicious, but we are not familiar with the diplomatic protocol and the nuances of the Constitutional law. Anyhow, according to Democrats, the problem is that Trump demanded a foreign country intervenes in the 2020 presidential election by digging up dirt on his potential opponent, and that he was possibly threatening Ukraine by saying he would withhold U.S. military aid unless they complied. Another issue is that the Trump administration was allegedly preventing the whistleblower's complaint from being shared with Congress, which is against the law.
It's an irony that it had been the Democrats who have in May 2018 written to the Ukrainian government, urging it to continue investigations into the alleged Trump-Russia collusion that was later found not to exist. Nevermind, the world of politics has seen weirder things already.
Can Trump Be Impeached?
Rightly or not, we are now headed toward an impeachment inquiry with Democrat leadership's full backing. Can Trump be impeached? Sure, he can. Impeachments is, after all, not the removal from the post, but the adoption of charges by the House, which triggers a trial in the Senate. Now, the key is although the House is under the control of Democrats, the Senate is Republican. So, the removal of Trump is unlikely. The idea that two-thirds of Senators would vote against Republican-backed president in the election year is rather silly. According to the popular betting site, PredictIt, the odds that Trump will be convicted by the U.S. Senate are at around 18 percent.
Implications for Gold
What does it all mean for the gold market? As the odds of conviction are very low, the whole impeachments process shouldn't have any significant impact on gold prices. It's just theatre. But it may support gold prices, if the drama helps Democrats in the campaign. So far, Biden leads the polls, and he is considered to be neutral for the markets. But as Elizabeth Warren's poll numbers rise, so does anxiety on Wall Street.
However, only 36 percent of registered voters support the impeachment. So, the impeachment may actually come back to bite the Democrats, just as Clinton's impeachment damaged Republicans in the 1998 midterms. It would paradoxically support Trump and would be rather positive for the stock market (especially if Trump strikes finally the trade deal with China), and stocks prefer the status quo. Hence, such scenario could be negative for gold prices on the margin.
In the short-term, the rising political uncertainty may help gold. On Tuesday, gold gained, as the chart below shows.
Chart 1: Gold prices from September 24 to September 26, 2019
But we are skeptical whether all these revelations will have a significant impact on the gold market. Yesterday, the gold prices dropped. Trump faces legal problems since the very beginning, without any material effects.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Thank you.
Arkadiusz Sieron
Sunshine Profits' Gold News and Gold Market Overview Editor
