Here's why gold's rally hangs on a Trump presidency

A strange correlation has developed between Republican presidential candidate Donald Trump and gold.

"Gold reacts when Trump's chances of winning rise above 40 percent or below 20 percent in the mainstream media," RBC's Chris Louney explained Tuesday on CNBC's "Futures Now." "We've seen this peak-to-trough matching, but only on those limited bands when his chances really fluctuate."

Indeed, both of Trump's highest polling positions in the past five months coincided with highs for gold. In early August, when the precious metal was trading near $1,400, Trump's chances of victory were at 50 percent, according to FiveThirtyEight. And, in late September, when Trump's chances were at 46 percent, gold hit a high of $1,339.

On the flip side, Trump's recent decline in the polls also shadowed low points for gold: the candidate's fall below a 20 percent chance of winning came alongside a 7 percent drop for bullion.

Louney emphasized that, over the course of the past year, the yellow metal glittered through July thanks to monetary policy and Brexit-related uncertainty. However, he now feels that political risks will likely be the key catalyst for gold's movement in the coming month.

"We note that gold prices receded by approximately $10 per ounce following the first U.S. presidential debate and were flat following the second debate, in line with the respective mainstream media reviews of the two debates," Louney said in a recent note.

"This led us to evaluate how gold has performed versus the likelihood of a Trump presidency. A gold positive scenario occurs if Trump's chances rise above 40 percent in mainstream media given possible resultant changes in global risk appetite."

Trump's chances of winning have increased slightly this week as the Republican candidate goes head to head with rival Hillary Clinton on Wednesday night. The rise coinciding with a three-day winning streak for the precious metal.

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