October 28, 2020

How "Who Wins" would affect the markets and the price of gold

As an article on Market Insider states; high market volatility looks like it will last well into next year, regardless of the outcome of the November presidential election - or even the arrival of an effective vaccine against COVID-19. That's according to 30 years of data suggesting that volatility takes months, or even years, to subside after a crisis. In the next weeks we will bring insights from different market insiders to discuss their thoughts on how the markets, and specifically the price of gold, may perform for the rest of the year and into 2021. 

The current U.S. presidential election will have a huge impact on the economy. With the results of the election roughly a week away, this topic has many consumers’ attention. The effects on the economy may not be immediate, but they could be profound for years to come.

The price of gold may be one of the many changes consumers will face in the upcoming years. How will the price of gold change because of the election?

Mark Stacey, Senior Vice-President & Head of Portfolio Management at AGF Investments Inc. predicts; "The backdrop for gold should remain supportive if either Biden or Trump win the presidential election, as both candidates want to spend significant dollars on infrastructure.  This will increase the U.S. deficit and lead to further U.S. dollar weakness, which will support the gold price. If the election is contested, market volatility will remain elevated and investors will seek a safe asset such as gold. Gold is not likely to see a limited price move if the vote leads to a split between the Democrats and the Republicans, however spending should increase over time as both parties will see the need for increased fiscal stimulus, included infrastructure."

Gold Prices and the Current Election

Experts note that Donald Trump is much more focused on the stock market compared to the precious metals market—which often has an inverse relationship.

Dan Popescu is an analyst and consultant who recently gave his “two cents” on the expected price of gold following the election: “The American stock market is very very bullish and likes Donald Trump because he cut taxes for the super rich, he cut taxes mostly for the stock market, which has been very bullish for the stock market.” In the short term, Popescu predicts: Gold will correct with Trump victory followed by collapse of US dollar and explosion of gold to $5,000 faster with Trump than with Biden but up irrespective of Trump or Biden. Both are bearish US dollar.”

With the current minuscule interest rates, the U.S. dollar is becoming less and less appealing to investors, which forces them to look toward other currencies. Goldman Sachs even warned that the U.S. dollar could be in a position that it would lose its world reserve currency status.

Daniel Oliver of Myrmikan Research predicts that gold prices will significantly increase if Democrats win the election and gain the majority in the Senate. In part, this prediction is based on increased money printing, including additional funds to provide a new stimulus package. In contrast, Oliver predicts that gold prices will dive if Donald Trump retains office, similar to what occurred when he first took office in 2016.

Regardless of the outcome of the election, Oliver notes that as the Fed increases debt levels, the price of gold will also increase. Most experts agree that gold is often considered a “safe haven” asset, which means that as the economy is expected to worsen, the prices of gold will often rise.