What could the US elections mean for commodities?
Comment of the Day

October 24 2012

Commentary by David Fuller

What could the US elections mean for commodities?

My thanks to a subscriber for this topical item by Julian Jessop for Capital Economics. Here is the opening:
The outcome of the US Presidential election is unlikely to have a major impact on commodity markets but there may still be some fall-out if Romney wins. Romney's plan to accelerate energy independence might depress oil prices. More aggressive policies towards Iran and China could raise geopolitical risks. Last but not least, speculation of a premature end to QE3 also has the potential to worry the markets.

Some caveats first. Neither Obama nor Romney has provided a detailed manifesto explaining what they would actually do if they won on 6th November. Most of their policy statements are of the "motherhood and apple pie" variety - hard to disagree with but lacking any real substance. What's more, any commitments made during the heat of a campaign always need to be taken with a pinch of salt. And the elections for Congress may also be important (a third of Senate seats and all those in the House will be contested). The Republicans have a large majority in the House while the Democrats control the Senate. A Republican clean-sweep is possible but it is more likely that Congress will remain divided, which would limit any President's room for manoeuvre. The bigger the margin of victory for either candidate, though, the greater his authority - including in negotiating a deal to avoid the "fiscal cliff".

David Fuller's view I agree with the opening sentence above. There could be some temporary knee-jerk reactions on either side of the US Presidential Election result, due to uncertainty and because that is in the nature of markets. Over the next decade or more, I think crude oil prices would be somewhat lower in the event of a Romney victory because he is committed to greater US domestic production. Fullermoney has long maintained that the US could and should become virtually energy dependent.

Thereafter, I maintain that China will remain by far the biggest influence on commodity prices which are retreating at present as you can see from this chart of the Continuous Commodity Index (Old CRB).

Back to top