How are gold and other safe-haven assets shaping up with the Biden Administration?
Gold prices differ in Biden’s first 100 days as compared to Trump’s.
Historically, gold prices rise during inauguration years by an average of 15%. When Trump took office, his first 100 days saw a series of international policies cut short, financial regulatory reforms, travel bans and international attacks that prompted gold to edge up in price. As such, it would come as a surprise to see the price of gold dropping as many expect Biden’s first 100 days to consist of socioeconomic policy reforms and executive orders.
Since taking office, President Biden has already signed 42 executive actions, kickstarting a wave of socioeconomic changes tackling healthcare costs, climate change threats, advancing racial equity, COVID relief and supporting a crippling economy. In particular, his crusades to combat climate change and COVID-19 have stood out as prominent policies that can significantly dent the US’s fiscal expenditure, drawing greater demand for gold.
How has gold been impacted by the new presidential era?
The proposed US$1.9 trillion COVID stimulus relief could positively impact gold as it amplifies the already large expenditure by further raising the country’s fiscal deficit. Many investors are concerned about the potential risks and inflation as a result of expanding fiscal deficit, low-interest rates and growing money supply.
Low-interest rates and high financial stress tend to foster demand for gold. In an economy that is experiencing inflation and pullbacks in the equity market, pulling back the price of gold is expected to increase. Traditionally the price of gold increased 15% on average when inflation was higher than 3%.
Additionally, reversing the previous administration’s climate-change denialist policies, the Biden administration’s ambitious US$2 trillion climate plan aims to champion renewable and clean energy. Investors have speculated that such regulatory changes and large expenditure could potentially place more strain on the US’s debt, further aggravating the already high debt ceiling that has reached the highest since 1946. With the growing emphasis on renewable energy, other precious metals are gaining prominence and performance where silver, for example, has benefited from the emerging industrial applications from the growing demand for solar energy.
With Biden shouldering a pandemic-stricken economy and record-high daily infections, his administration has greater challenges that could push the price of gold higher regardless of his policies and orders.
How does this impact other safe-haven assets such as bitcoin?
Some economists stipulate that the stimulus package will in turn boost economic activity by 4 percent at the end of 2021, reaching the pre-pandemic GDP projections. With Bitcoin’s increasing demand due to growing legitimacy from institutional backers and softening government stance, gold will face stiffer competition. BlackRock’s recent addition of Bitcoin futures on two funds and Biden’s speculated crypto-friendly administration, are signs that Bitcoin is gaining acceptance among institutional investors.
Many investors are rushing into the new digital assets, mostly betting big on the highly volatile Bitcoin. One raising concern is these digital assets do not have a long enough history to establish their position as an effective hedge. Bitcoin, in particular, swung wildly in the last year alone and for reasons that are barely related to anyone’s view on inflation.
As Bitcoin is gearing up to battle with gold, its value as a store of value is debatable as its volatility clouds its value over a longer time horizon. Biden’s large fiscal spending in his first 100 days, is likely to push the gold prices higher with greater US debt and economic uncertainty in the midterm. However, the increase may be minimal due to gold’s competition with Bitcoin, silver’s rise to meet renewable energy demands and strengthened economic activity from the stimulus boost. Nonetheless, gold is still a time-proven safe-haven asset and a good hedge against any investment.
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.
About Digix
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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