Gold: Will it win more with Republicans or Democrats?

Gold: Will it win more with Republicans or Democrats?

Given the role of the US economy globally, plus the prevailing geopolitical uncertainties, the upcoming presidential election is seen by many analysts as a watershed moment with far-reaching implications. How will the price of the precious metal behave?

Pexels

Today, Republicans with Donald Trump lead the polls although the result is far from assured. In addition, the recent events of the electoral campaign, both the attempted assassination of Trump and the resignation of Joe Biden to the presidential race, they raised the level of uncertainty for an already divided American electorate. Against this backdrop, investors are wondering about the impact of the elections on gold.

Empirical evidence shows that while While demand for gold bullion and coins in the US appears to increase, on average, during Democratic presidencies, other segments of investment demand do not.

For this reason, the analysts and strategists of the WGC focused on studying how the precious metal may behave with the upcoming November elections. In this regard, they point out that historically, elections have not had a significant or immediate effect on the performance of gold, but Regardless of the winning candidate, short-term geopolitical risks remain high and may serve as a catalyst for gold.

Moreover, they acknowledge, the price of gold generally responds to key factors, such as the direction of the dollar, interest rates or risk perceptions, which of course can be influenced by the economic, fiscal and monetary policies of a specific administration, regardless of party affiliation.

Gold: What did analysts conclude?

  • On the one hand there are two opposing tendencies: Gold appears to perform slightly better six months before a Republican president is elected and remains stable in the post-election period.; on the contrary, gold tends to underperform before a Democratic president is elected and to perform just below its long-term average in the six months after the electionIn any case, gold would not respond to the party affiliation of an elected president but probably more to the expected effect of specific policies.
  • Beyond the general performance of gold during the election, this time around we have the advantage of knowing how gold performed during the previous Trump administration. Although Biden is not running for re-election, we can analyze gold’s performance under his presidency assuming that there will be continuity of his policies under a new Democratic administration. Gold performed well during the Trump and (so far) Biden presidencies thanks to a combination of political decisions and global macroeconomic factors. Gold rose 60% during Trump’s presidency (up nearly 30% pre-Covid-19 and just over 30% during the pandemic), and under Biden, it moved sideways at first but has gained over 30% during his term so far.mainly due to macroeconomic factors and central bank purchases.
  • While there is a direct connection between geopolitical risk and gold (e.g. a 100 basis point increase in the geopolitical risk index has a positive impact of 2.5% on the metal’s performance), reinforcing the idea of ​​a safe haven for investors, in terms of the US presidential election, they have not historically proven to be a major direct driver of the gold price. However, the world Trump faces will be even more polarized than in his previous term so global markets may react more to the direction of his policies, especially external ones. Similarly, risk levels were lower at the start of Biden’s presidency compared to now and may continue to rise as the election approaches, regardless of which candidate the Democrats rally behind, and a Democratic presidency with policies similar to Biden’s may find itself with a divided Congress and have difficulty passing laws.
  • The 2016 campaign serves as a good indicator for the upcoming elections because it coincides with an electorate equally divided between both candidates and a possible change in the party that controls the White House. This presents an opportunity for investors who may be under-hedged and under-exposed to assets like gold.
  • As the year progresses, presidential elections will continue to dominate global news where unexpected events, such as those seen recently, have the ability to shake up financial markets. Gold’s performance around the election is slightly below its long-term average, although this is not statistically significant. In the six months following the inaugurations of Trump and Biden, gold returns were approximately -2.6% and -6.4%, respectively.

More volatility and gold as a safe haven

Furthermore, past elections have not created an immediate impact on geopolitical risk, but rather have contributed positively or negatively to the broader risk landscape, with a lag as governments implement policies.

“While gold has not, on average, reacted to the outcome of past elections, the outcome of this election may have a more noticeable effect on investor sentiment. The continuation of election-related uncertainty and increased geopolitical threats will add further volatility and likely impact macroeconomic variables. This, in turn, could prompt investors to assess how they could mitigate risk in their own portfolios and attract them towards a safe haven asset such as gold,” the WGC notes.

Source: Ambito

Leave a Reply

Your email address will not be published. Required fields are marked *

Latest Posts