What Biden's Victory Mean for Gold Prices?

After a massive increase in gold prices in 2020 and over the presidency of Donald Trump, what would Joe Biden's victory mean for the precious metal?

Barack Obama was the last Democrat president, and if we will draw a conclusion based on his years in office, one could observe an immediate increase in gold prices right after he assumed presidency.

When Obama took office in January 2009, the gold price was just over $890, and by the end of his first term, the precious metal has risen about 88.6% to $1,685.

While his first four years benefited the metal greatly, Obama’s second term proved more volatile. Gold slipped from the US$1,685 level in 2013 to approximately US$1,195 in 2017, a 28.9 percent decrease.

Obama's second term however, proved more volatile. Gold has decreased from $1,685 in 2013 to $ 1,195 in 2017, a drop of 29%.

Throughout his presidency, the value of gold has increased by 34%, were the metal's previous all-time high of over $1,900 occurred during Obama's years in office.

The price of gold has gradually increased since November 2016, where it rose from $ 1,183 an ounce to around $ 1,900 a month before the current election.

Today, the price maintains a 7-week high at $1,950,89 as US Fed urges fiscal stimulus.

On the other hand, gold saw an upward trend during Trump’s presidency. In January 2017, the metal was priced at US$1,210, reaching a new all-time of US$2,050 during his presidency, to add nearly 54% to its value under the Republican leader.

All mining watchers are equally optimistic about Biden's victory. Brent Cook of Exploration insights sees a Democrat victory as having little effect on the gold's value, as Biden will have other issues to deal with, citing other catalysts that would stimulate the price of gold.

The most important factor, which can effect the price of gold is when the COVID-19 vaccine becomes available, pushing the US economy back to normal, adding $100 or more to the gold price.

Other analysts say that a Biden's presidency is a deterrent for gold, especially the transition period, which usually cause market volatility and fluctuations.

"With Biden elected, the markets will react negatively as markets do not like change, which is good for gold demand, yet, at some point this will likely return to normal," they added.

Fulp sees downside in gold because he views the yellow metal’s August run up to over US$2,000 as unsustainable, and believes gold has no resistance at its current level. “(Gold has) a really, really strong base at US$1,720, plus or minus. So it has a lot of downside risk right now,” he said.

A downside in gold can also be observed as the gold shows no strong resistance after its August's $2,050 rally, pushing the metal downwards to around $ 1,720. 

US Federal Reserve critic and chief strategist Danielle DiMartino expects the current political and social landscape to benefit gold, as he sees Gold and disruption go hand-in-hand, adding that there is a big chance for social unrest following the election result, which can benefit gold.

A Trump presidency is seen as 'friendly' to more risky assets, including gold, while a Biden may lead to the suppression of monopolies, harming gold gains," DiMartino added.

Fiscal stimulus and national debt are a priority in the United States, effecting gold prices in a strong way.

During the current period, conditions which are favorable to gold prices are Low interest rates, money printing, trade war, civil unrest, inflation, and most importantly the re-emergence of coronavirus in the winter.

Gold prices observed a hike during the first two years of George W. Bush's (Republican) both terms and first term under Barack Obama (Democrat), but a drop in price at the start of Obama's second term.

Gold was around $ 1,200 an ounce when Donald Trump was elected in November 2016, and fell 7%  following the result, then gold was traded between $1,200-1,350 until 2018, only to gain around 30% in the wake of the pandemic.

While, it is essential to look for links between gold prices and other factor, such as presidential elections, however, gold prices are more influenced by other factors, particularly the US dollar and bond yields.

Financial markets generally prefer certainty, so this scenario could support the price of gold at least for the medium term.

Usually, the US dollar strengthens immediately after a change in presidency, regardless of which political party wins, indicate a stronger dollar if Biden wins the election. This scenario occurs if Democrats took control both the Senate and the House after Biden's victory.

If Trump would still be in office, increased certainty is in fact negative for gold, at least in the short term, until investors reassess the the overall economy under the new administration.

It is not about who wins the election, but rather the general policies of the winning party, which affects the yellow metal, however, financial crises and pandemics are with the most affect when it comes to market prices.

Biden's victory will liberalize global trade, unlike Trump, who increased many tariffs on U.S. imports, and provoked a trade war with China, which increased the price of gold.

Moreover, liberalizing trade would ease tensions leading to an increase in the price of the dollar and a drop in the price of gold, while fiscal stimulus packages have a positive impact on gold.

The high probability and continued low to negative real bond yields should be a factor behind the gold price. The situation is unlikely to change with any electoral outcome.

Either party can be preferred to either a disputed outcome that delays action and creates uncertainty, or a pided Congress in which a financial package is difficult to agree to. Uncertainty is usually a positive environment for gold.

Regardless of who ultimately wins these elections, the president and Congress will still have to deal with the pandemic and ballooning government debt.

Arguably, the biggest risk to the price of gold is an economic recovery that is stronger and faster than expected.

Uncertainty amid a second coronavirus wave can push gold to the $2,000 an ounce level next week, said Afshin Nabavi, vice president at precious metals trader MKS.

"We are now at around $1,950-55. If we can get above that, I think $2,000 is in the cards," Nabavi said. "Economy is in deep trouble around the world because of the pandemic, stimulus packages will keep on printing money, and the precious metal will benefit on the upside."

Meanwhile, SeeNews analysts believe that the yellow metal will rise in the medium term as investors are optimistic about Biden's victory, yet, prices will observe a drop in the long term as the new president is expected to ease the trade war and provide a better medical system against the pandemic. Also, analysts see a sharp drop once a vaccine is announced, reaching 2019 estimates of around $1,200 an ounce.

Last Thursday, major central banks sold gold in the third quarter of this year, for the first time in nearly a decade, making available more supply, which led to a $20 drop in price to $1870.78

Bloomberg indicated that some countries have taken advantage of high record precious metal prices to ease the impact of the coronavirus pandemic.

Hikes in Gold Prices

In 1980, the price of gold hit an all time high at $2,246 an ounce after the Iran hostage crisis, while in the fall of 2011, the price of the yellow metal hit another high at $2,076.

In 1982, gold dropped severely loosing more than 90% of its value to $836.

In 2011, a combination of paranoid investors and others with a fear-based political agenda were happily predicting gold prices going to $2,000, $3,000, and even to $5,000 in a matter of years, yet, prices have moved mostly downward since then to record $1,153 an ounce in 2015.

In Sept. 2018, and after trade tensions rose between the two biggest world economies, the price of the precious metal started rising from $1,208 to touch $1,534 by mid-Aug. 2019 to start its rally, during the pandemic, heading for the biggest rise in the history of the shiny metal.

It is noteworthy that gold also witnessed three major leaps during the energy crises of the seventies caused by the October War, and after the Sept. 11 hijacking, as well as during the global financial crises in 2008-2009.