The gold price continues to oscillate with enhanced volatility in recent days, in an attempt to consolidate and build a base above the USD1900 per oz level. As mentioned previously such an attempted consolidation is fairly normal and expected after such a violent and unprecedented move to new all-time highs.
The current spot gold price is especially sensitive to any positive COVID-19 vaccination news. Furthermore, the lack of incrementally negative geopolitical news also dampens the fear trade. Finally, it’s important to note that Gold doesn’t exist in a vacuum when it comes to other asset classes. Both recent moves in the USD and US Treasury yields show that as fear subsides allocations move away from Gold.
Is that to say uncertainty is over? Far from it. The clear major news event that is upcoming is the 2020 US Presidential Election. What are the consequences for a Biden win or a Trump win?
If current polling showing a Biden win remains as the weeks progress then expect an increasingly desperate White House to pull out all the stops, beyond anything seen before. The current US president has made a huge amount of enemies and there will be no shortage of people ready to prosecute or sue once he leaves office. Such desperation could mean an election delay attempt or boycott which would be unprecedented and highly contested. This would surely mean a huge amount of uncertainty and fear helping the gold price. It would no doubt add to the current weakness of the USD further helping Gold.
If however Trump does win then expect the ratcheting up of more pressure on China and Iran with a president emboldened by a second win, and no need to worry about reelection. There would also be no issues with more tax cuts and fiscal stimulus packages further decreasing the US dollar. Stock markets would cheer such action with a stock market friendly President returned to power. This could also further stoke inflationary pressures, though as been seen with the last decade of stimulus such inflation is no longer guaranteed.
A Biden win would scare markets initially. As would his Covid-19 policy. Biden has stated that he would be especially quick to reinstate a nationwide shutdown. This is in sharp contrast to Trump and remains one of their biggest distinctions.
Biden’s approach to trade would mark a return to the globalisation friendly policies of the previous decades. Gone would be Trump’s unilateral approach. Instead, especially regarding China Biden would attempt to create a more engaged coalition of other nations to stem China’s trade abuses. However, Critics would argue such policies were totally ineffective given how assured and confident China is now in the foreign policy realm.
On domestic economics Biden would prioritise inequality reduction over economic growth. This could lead to redistributive policies that would create flows from equities into Gold.
Gold should appreciate given Biden’s domestic economic policies and perceived antagonism of the Democrats to the stock market and asset and inequality so far. In contrast his more dovish, multilateral approach geopolitically should calm tensions and reduce aggressive rhetoric that has accompanied the Trump White House.
Ultimately if geopolitics calms down, regardless of the president, and the markets get a small hint of a return to the norms of globalisation before 2016 then Gold could come off. This is unlikely in both scenarios. However, the strength of the economy and thus the ability of the US Government, and other governments, to pay their debts and reduce deficits will be the main driver of the gold price. And with both presidents committed to expansionary policies, and a Central Bank philosophy and codex that is committed to do the same on the monetary side the only significant difference between them at a general level that affects the gold price is their approach to geopolitics. Perhaps paradoxically Trumps rhetoric has not been matched by his actions. He remains the least militarily engaged president of the past decades. Biden, however speaks softy and walks with a large stick and is not afraid to use it.
In sum, events beyond the election will dictate the continuing trajectory of the gold price. Structural and secular forces, as detailed in these pages previously, cannot easily be changed by US presidents. Global debt, shifting geopolitics and anti globalisation will not suddenly go away. And it it these issues that many think are driving the new secular bull market in Gold.
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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.