Trump or Biden: Impact of the US presidential election on the gold price

Trump or Biden © Jon Tyson / Unsplash

On November 3, Americans will decide whether Donald Trump will be allowed to stay in the White House for another term or whether Joe Biden will become the 46th US president. Historically, U.S. presidential elections have often had a direct impact on the price of gold, as a change in leadership has often brought with it a change in fiscal policy.

General conditions remain the same

To support the economy and boost employment, the FED has already committed to low interest rates until at least 2023. This means that regardless of who is in charge, the US dollar is likely to weaken over the next two years.

So far, the stock market has also come through the Corona crisis well and has even staged an unprecedented rally. However, this rally was also fueled primarily by government stimulus, rescue packages and aid commitments.

However, the higher the level of government spending in the USA, the greater the national debt and the greater the pressure on the dollar.

And a weak dollar - gold is traded in dollars worldwide - always means a high gold price.

Democrats or Republicans

In fact, it will not only depend on the outcome of the presidential election, but also on how the Senate will be composed in the future.

If not only Biden becomes president, but the Democrats can also capture the second chambers of Congress, the Democrats are likely to put together a massive stimulus package - up to $3.4 trillion is being talked about.

This stimulus package would boost the stock market once again in the short term, but in the long term it would primarily cause government debt to rise further and put even more pressure on the dollar.

At the same time, Democrats are more in favor of corporate and capital gains tax increases and would probably reintroduce stricter laws for industry and commerce. Such a scenario would drive the gold price further up.

If Biden wins the presidential election without the Democrats controlling the entire House, there are unlikely to be any drastic changes on taxes. Above all, the stimulus for the economy is also likely to be much smaller under a Republican Senate.

Unsplash Brexit
Image credit: Markus Spiske / Unsplash

If Trump manages to prove the polls wrong once again and is re-elected, he would continue to face a Democratic House of Representatives at least until the mid-terms.

In this case, Trump is likely to force his Senate Republicans to pass a higher stimulus package than they would like. However, the overall economic aid package would then certainly be smaller than a purely Democratic one.

Litigation, street battles, civil war?

If Donald Trump is indeed voted out of office by the American people, however, it is far from certain that the president will acknowledge this defeat so readily.

Demo US elections
US election demos - image credit: Unsplash

For months, Trump has been stoking doubts about the proper conduct of the election in general and the absentee ballot in particular. Trump has also said several times that he expects the election to end up before the Supreme Court.

If there is no clear winner or Trump refuses to accept a Biden victory, chaos will ensue. Legal disputes, violent riots, even a civil war then seem possible.

In such a scenario, the gold price is likely to shoot up. Uncertainty is always good for gold. A disputed election would not only bring uncertainty as to who will be the next president of the USA, but the economic stimulus packages would also be postponed and would probably not take effect until 2021.

Monetary policy remains

A normalization of the U.S. monetary policy of cheap money - lowest key interest rates and quantitative easing - is not in sight for years. No matter under which president. Sooner or later, the money glut will lead to inflation, so gold will be in greater demand as a "hard" currency to preserve purchasing power and safeguard assets.

For gold buyers in Europe, of course, the exchange rate between the dollar and the euro is particularly relevant. Since the support packages are also being put together in Europe and the ECB is also pursuing a low interest rate policy, the euro should also come under pressure and also go down. In addition to the Corona crisis, the Europeans also have to deal with a hard Brexit, which is likely to put further pressure on the EU economy.

Golden age ahead

In any case, we agree here with the two analysts Ronald Stöferle and Mark Valek, who assume a "golden decade" in their In Gold We Trust Report 2020 2020.

Like me, they consider it virtually certain that the price of gold will rise. In their model, they continue to assume that the gold price in 2030 will most likely be around 4,800 US dollars, although even a higher gold price is not ruled out.

You too can profit from the current gold price development. Visit one of our branches in Vienna and benefit from the know-how of 125 years of family tradition. The precious metal experts of Gold & Co are looking forward to meeting you!

Because history proves: What remains is gold.

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