How Will Biden’s Victory Impact Gold Prices?
The price of gold is soaring due to the economic uncertainty that’s currently taken over the world, all thanks to the coronavirus pandemic. Like with previous recessions, investors have rushed to the gold market to protect their portfolios; the influx of investment, combined with the decline in the supply of gold, is hiking up prices in major ways.
The price of a troy ounce of gold is now $2,000; some analysts claim that it could reach $2,500 in 2021—others say it could reach that price by the end of 2020!
Why is the Price of Gold on the Rise?
There are many reasons for why the price of gold is continuously rising, including the following:
The Decline in the US Dollar
The coronavirus pandemic led to widespread shutdowns all over the world that took a toll on the global economy; the value of the US dollar also declined as a result. The depreciation of the US dollar usually makes it easier for investors in high-demand countries like India and the Arabian Gulf to put their money into gold markets; this hike in investment directly impacts the global demand for gold.
It’s a Safety Net
Gold has always been a savior for investors during times of financial crisis. Because it’s a largely independent entity, it isn’t impacted by ups and downs in financial markets—especially inflation.
The economy may fumble, but gold will always be valuable.
To stop the economy from plummeting, the Federal Reserve maintained near-zero interest rates, lowering borrowing costs.
The Federal Reserve also purchased bonds worth hundreds of billions of dollars, which led to a decline in yields, forcing investors to turn to the gold market.
To counter the economic downfall, governments introduced stimulus packages to inject liquidity into markets. For a short period, this did lead to a slight dip in gold prices; however, it quickly became clear that the coronavirus pandemic was a long-term problem. The stock market took a hit, and investors flocked to gold markets out of desperation again.
Despite the announcements of vaccines in the near future, there is still plenty of economic uncertainty. Economic analysts claim that the global economy may not recover until 2022, which again makes investing in gold the most sensible option for investors who need to protect their wealth.
Joe Biden’s 2020 Election Victory
Keeping all of this in mind, we must acknowledge that the US economy is bound to shift thanks to Joe Biden winning the election. Biden’s economic policies are very different from that of the current administration. Other than that, his handling of the coronavirus pandemic will have a direct impact on the financial market and the price of gold.
So how will Biden’s victory impact the price of gold?
Let’s take a look:
Gold Prices Under President Obama
When the last Democratic president was elected in 2008, there was a substantial hike in gold prices as soon as he took office.
In January 2009, when President Obama was first sworn in, the price of gold was around $890. When his first term came to an end, the price of gold increased by 88.6%, reaching $1,685.
During President Obama’s first term in the Whitehouse, the precious metals market was thriving, but it took a bit of a hit in his second term.
In the last four years of his presidency, gold prices went from $1,684 in 2013 to $1,195 in 2017—that’s a 28.9% drop.
Generally, throughout Present Obama’s tenure, the price of gold rose by 34%; it reached a high of $1,900, which is pretty close to where it is currently ($2,000).
Gold Prices Under President Trump
Although the coronavirus pandemic catapulted gold prices, they’ve been increasing steadily since 2018. During President Trump’s tenure, the price of gold rose from $1,210 in January 2017 and could possibly reach $2,500 by the end of 2020 (due to the ongoing pandemic).
Gold mining companies are optimistic about the Democratic win. Incoming President Biden has his hands full with issues like healthcare and civil unrest. And there are other factors that will further hike up gold prices.
Factors Impacting Gold Prices Under Biden’s Presidency
Image File Name: Woman-celebrating-Biden-victory
Image Alt Text: Biden supporter celebrating his victory wearing a mask.
Currently, several factors could impact gold prices under Biden’s presidency.
We haven’t had a health issue directly impact the economy the way that COVID-19 has in a long time. Countries were forced to shut down their economies in a desperate attempt to curb the spread of the virus. A few weeks of lockdown were enough to damage the economy for the next couple of years.
Immediately after Pfizer’s COVID-19 vaccine was announced, the price of gold staggered and decreased by 5% before stabilizing again in the next few days. Some analysts believe that the introduction of the vaccine will negatively impact gold prices, but others aren’t so sure.
The vaccine will undoubtedly help the global economy; however, we’re still lacking a solid distribution plan and are unclear about how long it’ll take for us to reach herd immunity. Experts believe that financial markets aren’t going to recover anytime soon, and we should expect gold prices to rise.
The development and successful distribution of a COVID vaccine could help stabilize the US economy and might add another $100 (if not more) to the price of gold in the long-run.
The Transition Period
Some financial analysts claim that a change in the presidency may cause gold prices to slip initially. The US economy tends to fluctuate during the transition period but quickly stabilizes.
Financial markets don’t react positively to change, which leads to an increase in gold prices.
It’s been a couple of weeks after the US election was called, yet, there’s an internal conflict in the White House, with President Trump refusing to accept the election results.
During the Trump presidency, the US witnessed social unrest like it hadn’t seen for decades. The US’s volatile social climate is expected to cause a hike in gold prices in the short-term.
From history, we know that economic disruption and an increase in gold prices go hand-in-hand. As the 2020 US election results are called, the country is expecting social unrest, which could possibly increase gold prices.
National Debt and Economic Stimulus Packages
Economic stimulus packages and the national debt are the main priorities for the incoming administration. The first round of stimulus checks in the US were delivered in April; the second round of stimulus checks are long overdue. Although negotiations started again in October, the public has no idea when it will be receiving the next checks.
Stimulus checks are needed to revive the economy until the vaccine is finally distributed, and herd immunity kicks in. Once the stimulus checks are given out, the value of the US dollar is expected to go down, which should increase the price of gold.
There are various factors favoring gold prices, such as inflation, reduced interest rates, social unrest, the printing of money, the trade war and the third-wave of the coronavirus that could prompt a widespread shutdown.
National debt also impacts the prices of precious metals. When a country’s debt exceeds its GDP, interest payments become more expensive. The increase in interest payments causes the government to increase taxes to meet its needs.
High taxes restrict business operations and obstruct economic growth. The slowing economy weakens the national currency, forcing investors to turn to gold and other precious metals.
National debt directly impacts gold prices; gold investors must always monitor national debt forecasts because it is relatively easier to predict. That being said, investors should also track new spending policies introduced by the government that could impact the debt level and GDP in the long-run.
Looking at national debt isn’t enough; investors must also watch global debt. Investors in other countries with large debt may dive into the precious metals market and hike up global demand, increasing prices.
What to Expect From Biden’s Economy
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Image Alt Text: American flag at a polling station.
Investors must look at all factors when determining where to put their money—the US presidential elections being one of them. The US elections also affect bond yields and the value of the US dollar—and both impact gold prices.
Financial markets thrive when there’s certainty. The value of the US dollar tends to increase after a new president steps in; this happens regardless of whether a Republican or Democrat wins. Biden is expected to strengthen ties with allies and alleviate US-China tensions, which should further increase the US dollar.
Economists expect Biden’s victory to revive global trade by reversing Trump’s tariffs on imports and ending the trade war he’d started with China. Although liberalizing trade should strengthen the US dollar, its value will still be impacted by the stimulus packages that are distributed during the coronavirus pandemic.
Even after the elections, bond yields will remain low to negative, hiking up gold prices. Any obstructions in transitions to the next presidency may cause further uncertainty and drive gold prices up.
When Biden takes office, friction between him and the Senate regarding how to deal with the coronavirus pandemic will exacerbate the national debt, again pushing investors to the gold market.
What is the Biggest Threat to Gold Prices?
If the US economy recovers faster than analysts currently expect and emerges stronger, investors will pull out of the gold market, causing prices to slip.
It looked like the US economy made a rapid recovery in the third quarter. The unemployment rate decreased as millions of Americans resumed their jobs. However, experts believe that global economic recovery is still fragile.
Unlike other major nations, the US has resisted lockdowns; while this kept its economy running, it also led to the spread of the coronavirus. The US now leads the world in coronavirus infections and fatalities, leaving many to wonder if the resistance to lockdowns was worth 248,000 deaths.
As of October 2020, many major countries in Europe have once again gone into lockdown, including the UK. It may have looked like the US economy had recovered from the coronavirus pandemic, but then it was quickly hit with the second and third waves of the coronavirus.
Governors all over the US are implementing restrictions to curb the coronavirus outbreak in their cities. Restaurants have limits on indoor gatherings, states have reintroduced curfews, and public schools may close down as more than 1 million students are currently infected.
Image File Name: Trump-rally
Image Alt Text: Trump rally considered a super-spreader event for COVID.
Coronavirus outbreaks in the US have been traced to rallies and events involving mass gatherings—some of which consist of tens of thousands of people. Unless there is a shift in public attitude toward the ongoing pandemic, the US economy isn’t going to stabilize anytime soon.
President Trump may have written off another lockdown, but that may be the country’s only option if the spread of the virus doesn’t slow down.
The longer the US takes to control the ongoing pandemic, the more stimulus packages it will need to keep injecting into the economy, which will drag down the value of its currency and increase the price of gold and other precious metals.
How Long Will it take the Biden Administration to Fix the Economy?
It’s going to take the Biden administration some time to open up the economy. The US and China are in the middle of a trade war; Biden cannot ease tensions overnight. It’s a slow process that will take time.
In the same way, the US’s healthcare system is currently overwhelmed with the influx of patients as coronavirus hospitalizations reach an all-time high.
Even though Pfizer and Moderna have announced vaccines, it will take several months to distribute the vaccine and reach herd immunity.