【MACRO Insight】Analysis of Goldman Sachs and Deutsche Bank's gold trading strategies during the elec

Goldman Sachs' commodities division reported that it has reduced the risk of its gold positions during Tuesday's election, converting cash positions into options to buy gold at low points during the election. Goldman Sachs said that everyone they contacted was long gold, so as the election approaches, the bank has positioned its positions through the following combination:

1. Buy gold options using a short-term leveraged structure, willing to pay a premium to capture convexity in the event of a controversial outcome.

2. Use call spreads with 20% delta in 3-6 months expiration because they still believe in the medium term thesis and their spreads are wider.

Goldman Sachs noted that last Friday was the first time in the past month that meaningful liquidation was seen, and that the difficulty with gold is that you can argue almost any election result in any way (except for a disputed election result, they don't see why the price doesn't rebound). Goldman Sachs said that if Harris wins, it is theoretically bearish and there may be a knee-jerk lower move, but it can also be said that once "bad news is priced in", there will be buying at lows to support the theory of medium-term strength; if Trump wins, the consensus is that Trump's fiscal policy is good for gold. All in all, Goldman Sachs said that it can't be as simple as "I win, you lose", especially after gold's huge success this year-gold is the best performing asset in 2024, so the bank "prefers to hold long positions through options so that we have ammunition to buy gold when there is a huge adjustment in positions."

In a special report from Deutsche Bank's Michael Hsueh, the commodity strategist looked at how gold, the best performing asset in 2024, would perform over the next five years, and more importantly simulated a Trump vs. Harris administration. The results are stunning and encouraging for gold bulls. Huseh noted that gold's safe haven attributes mean it can fully express anxiety about breaking away from the status quo. Therefore, gold's reaction to the election will depend primarily on the disruptive breakthroughs indicated by former President Trump on trade, immigration and foreign policy.

Deutsche Bank analysts expect gold to move higher if Trump wins (+2%) and lower if Harris wins (-2%). However, Hsueh expects the gold sell-off to be short-lived as Asian imports and central bank demand will offset speculative futures outflows. In addition, gold's positive response to federal debt growth is self-evident. Some investment banks, such as Deutsche Bank, expect Trump's budget plans to lead to an upward debt growth trajectory, although the potential budget assessment of a Harris administration also shows an upward deviation from the baseline. In other words, no matter who enters the White House, the US debt will be much higher in 5 years. That is, a Trump administration without import tariffs will put the federal debt on an abnormal trajectory of high growth, which means that the gold price may be as high as $4,150/oz by the end of 2029, compared with the baseline forecast of $3,730/oz.

The Deutsche Bank report also mentions the importance of trade policy, but the impact of trade policy on gold is unclear due to the counter-effect of the appreciation of the US dollar. On immigration policy, Trump will again depart from the status quo, but here we can see the importance of the composition of Congress; without a "red wave", Congress will have more room to limit efforts to deport immigrants. Deutsche Bank believes that after Trump wins, there will be another clear divergence in foreign policy that is favorable to gold. Compared with Harris's current situation, Trump's public remarks show his different attitude on foreign policy.

In Gallup polls, the partisan split in confidence in the accuracy of the presidential election widened to its largest since at least 2004, at 10. Republican confidence has steadily declined from 55% in 2016 to 28% in 2024, while Democratic confidence has stabilized near 84%. Similar partisan differences have emerged in expectations for election-related issues. Therefore, there is certainly tail risk for gold if Vice President Harris wins, the election results are disputed, and the counting of votes after the election may need to be extended to resolve disputes.

In short, Deutsche Bank believes that gold's first reaction to the election results will be positive after a Trump win, mainly because his policies are seen as a departure from the status quo, creating greater uncertainty, coupled with faster federal debt growth and the complexity of potentially ignoring the impact of tariffs on gold. On the other hand, a Harris win would mean a narrowing of the risk premium, but any sell-off in gold is expected to be short-lived as Asian imports and central bank demand will offset speculative futures outflows.