Gold Price Movements After U.S. Elections — The Past, Present and Future.
Historical Gold Price Movements
There has been little evidence of a clear relationship between the gold price and election outcome based on party affiliation. The price of gold has recorded better and worse years under the leadership of both parties and even exhibited contrasting performance under the same administration during two successive terms.
The world is expected to witness as much turbulence and polarisation as the first term should there be a second Trump administration. This adds further volatility and uncertainty across traditional markets. However, the potential for radical policies could be lower in the second term should Congress remain divided.
A Joe Biden win would represent a return to a more conventional administration; One with an ambition to restore the US’ previous multilateral stance on the foreign policy front. This presumably results in less volatility, political risks and international tensions.
Efforts to attribute a specific market reaction based on a candidate’s party affiliation is a practice of nuance especially when external fundamental factors like seasonality and economic cycle are taken into consideration. Many contrasting observations can be made from different regimes as financial markets have seen bubbles and crashes during various presidencies.
Gold in 2016 Election
Back in the 2016 election, gold failed to rally after Trump’s win. Gold prices spiked by as much as 5% before easing back. Prices saw a lower finish after Trump’s 2016 win as uncertainties were raised with Trump’s unorthodox approach to politics.
Before the 2016 election, gold prices were expected to benefit no matter who was elected president — with a Trump win potentially disruptive politically and economically, and a Clinton win seens as inflationary.
The gold price retreats after an initial surge on US election result. Price of gold fell back from sharp gains after a conciliatory victory speech from Trump which helped the dollar rebound. His speech was conciliatory and had none of the harsh rhetoric echoed during the campaign. It calmed the markets and boosted the dollar.
Gold price expectations for 2020 Election
UBS tells clients to prepare for the contested election by buying gold. They are wary of the increased stock market volatility and advised clients to buy safe-haven assets like gold. With questions raised on the peaceful transfer of power if he lost and a possible contested election outcome may fuel further volatility and result in safe-haven flows.
To consider the 3 possible scenarios:
Scenario 1: Biden wins a full sweep at the election resulting in the Democrats controlling the house and the senate:
- With Biden’s favour for a greener economy, he is expected to make regulatory changes that can improve the future of the country but increase national debt at a time when it’s already high
- Biden is expected to bring in corporate and capital gains, tax hikes and industry regulations, there is expectations that this would put further strain on the value of the dollar, which is bad for US stocks but positive for the price of gold.
Scenario 2: Biden wins the election but not the senate:
- Trump’s tax regime will likely remain despite Biden’s win. In this scenario, this may keep the markets steadier, changes will be less impactful and uncertainty reduced.
- Biden will likely clam trade relations with China and lift various sanctions on foreign countries, benefitting the stock market but reducing demand for gold.
Scenario 3: Biden loses and Trump wins.
- If Trump wins yet another election, his continued stance on international relations, the trade war with China and an unpredictable political approach may set prices of gold rallying high.
- With the COVID-19 outbreak placing added uncertainty and Trump’s pro-resource sector stance, prices of gold may possibly remain high should Trump win his re-election.
Market predictions for gold post-election
With the US’s third wave hitting a new record high of daily COVID-19 infections and the pandemic likely to continue into 2021, it is probable if gold sustains its high prices. Especially with the approaching winter, the US and Europe now face a new uphill battle with the coronavirus which may likely continue uncertainty in the market.
Gold prices were previously seen to be ending lower with the promises of a vaccine for COVID-19, prompting an early rally in the US stock market and global stocks surged with trader optimism building and dulling haven demand for the precious metal. However, with continued doubts on Russia’s COVID-19 vaccine and challenges faced by vaccine trials, the price of gold may continue high against weakened investor confidence in the economy.
Increased demand in gold
Investors around the world are witnessing huge shifts in the market — this has been caused, in large part, COVID-19, which has led to one of the biggest economic downturns since the 1929 Wall Street Crash and subsequent Great Depression.
With Asia being the first region to be impacted by the coronavirus, there was a noticeable rise in gold investments in East Asian countries in February — a gold rush that happened much earlier than the West, which only saw an uptick in gold demand in April when the virus began spreading rapidly through western countries. This is a clear depiction of gold’s correlation to ongoing economic conditions and reinforcing its position as a safe-haven asset for retail investors looking for financial security amidst uncertain volatile economic conditions.
As tensions between the US and China continue to rise, we are witnessing an increasing number of investors turning to gold as NASDAQ begins implementing new measures tightening listing rules for Chinese IPOs.
However, before this, investors were already reacting to changing economic and political realities across North America, the United Kingdom, Europe, and Asia — such as Brexit, repeated climate crises, the situation in Hong Kong, the trade conflict between Japan and Korea, and tensions between the United States and China and Iran.
Even previously “safe” markets and markets witnessing high rates of return for investors have experienced a sharp downward trend in recent months, with everything from traditional stocks and bonds to the technology sector and China’s huge manufacturing sector witnessing a marked slow down.
Economies have, almost without exception, experienced a marked decline in growth and many of the world’s leading economies have contracted this year, and many next year as well.
For many investors, gold stands out as an obvious choice when it comes to diversifying their portfolio. As a longtime safe-haven asset it has been called “recession-proof” by some leading investment experts and is largely uncorrelated with monetary markets and economic fluctuations.
What is the outlook of gold for this year and for the next 5–10 years?
With Australia outpacing China to become the world’s top gold producer by 2021, it is possible to witness an increasing rise of retail investments in gold within the Asia Pacific region.
Home to some of the largest gold buyers in the world — from India, China, Singapore and Hong Kong — the increase in gold supply within the region will benefit many regional buyers who often buy gold as a store value.
However, with the uncertainty of the COVID-19 pandemic, the volatile market and unpredictable economy have made it difficult to ascertain how the industry will evolve and the true impact of Australia’s gold supply on the regional gold industry.
With the global impact of COVID-19, some of the world’s economic leaders — from Japan, Hong Kong and Germany — are already feeling the recession pinch, and it is possible to witness increasing demand for safe-haven assets such as gold.
We have already seen an increasing number of digital gold users in the past 2 months. This shift to digital gold could be attributed to its affordability and accessibility especially during times of inconvenience where gold supply has become disrupted by limited economic activities.
As the impact of the pandemic is expected to last for a long time, it is probable to see such a trend extended over the next few years.
How can modern technologies help the gold industry overcome issues of increased demand?
Digital gold makes it easier than ever before to micro-accumulate gold — in as little as 1 gram increments — meaning that people don’t need a lot of capital to enter the market.
Being able to buy online and receive confirmation of the transaction, as well as removing the onus of custody gold yourself, digital gold means that consumers can buy, trade, and sell gold from home — which has never been more important now than ever, with increasing practices of safe distancing.
Digital gold also allows consumers access to physical bullion stored as far away as Canada — meaning that it lends greater liquidity to the market. Amidst an increased demand for gold as a result of ongoing economic volatility, the industry experienced noticeable shortages in physical dealerships as refineries had to temporarily shut down as a result of worldwide lockdowns. Ultimately, digital gold is a simpler, more accessible means for everyday investors and consumers to protect their wealth at a time of unprecedented risk to the economic status quo.
Disclaimer: This article is written to express my own opinions. It is not a piece of investment advice from Digix. Digix’s blog may contain statements and projections that are forward-looking in nature, and therefore, inherently subject to risk, uncertainties and assumptions. Do take into consideration your own unique investment situation, objectives, risk tolerance and investment horizon in any investment decision.
Digix, incorporated in Singapore in 2014, is the blockchain company behind the world’s first gold-backed digital asset class. Digix uses blockchain to account for the authentication and provenance of 99.99% investment-grade gold bullions. Physical gold bars are registered on the blockchain, and every 1 gram of physical gold registered is pegged to 1 DGX token. The physical gold bars are kept in vaults located in Singapore and Canada.
Digix recently won the 2020 S&P Global Platts: Precious Metals Industry Leadership Award and was a finalist in the 2016 Singapore MAS Fintech Awards.
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