December 05, 2020

Now that we know President-elect Joe Biden will be running the U.S. for at least four years, we have a clearer idea of where the price of gold may be headed.

First, before the November election, it was widely predicted that the price of gold would undoubtedly fluctuate if Biden took the White House, but not the Senate. If the Georgia runoff elections keep the Senate a Republican stronghold, shifts in the world economic outlook may be less pronounced, in either direction. It’s safe to say Biden’s residency is expected to be calmer and less unpredictable compared to what Trump brought to the US in the past four years.

Biden may be expected to ease trade relations with China and soften the various sanctions on foreign countries. This would be useful to the stock market and to the American dollar but could reduce demand for gold.

Several precious-metals experts, though, see an impressive upside for both the world economic outlook and the price of gold due to Biden’s election win

Standard Chartered precious metals analyst Suki Cooper told Kitco this week: “The USD remains the primary driver for gold at the moment and in the past six elections, the gold-USD correlation was not only firmly negative five weeks ahead of the presidential election, but also remained so at the time of the election; in half of the instances, the relationship strengthened. A Biden victory and Democrats gaining full control of Congress paints the weakest scenario for the USD, UST yields and U.S. risk assets in light of intended fiscal stimulus and tax increases; and given that gold currently has the strongest correlation (over - 50%) with the USD, the USD response is key.”

She went on to say that longer-term, negative real rates, unprecedented stimulus and a weaker US dollar will continue to dominate and provide a favorable backdrop for gold, and that, overall, most scenarios this year involve a faltering U.S. dollar, which is beneficial to gold in the long run.

Other experts agree. Investors shouldn’t forget about the possibility of a debt crisis or the risk of accelerating inflation when the pandemic ends thanks to promising news about 2021 vaccines, and people increase their spending, says Arkadiusz Sieroń of FX Empire.

“In other words, the ongoing fiscal and monetary stimulus should support or even push gold prices higher in the medium to long-run. It’s possible that, when confronted with the lack of a fiscal package, the Fed will introduce some changes at its upcoming meeting in December to keep the real interest rates at ultra low levels and to stimulate the economy,” he goes on to say.

Pro-stimulus views are a strong signal that the price of gold could increase over 2021, noted TD Securities head of global strategy Bart Melek. The combination of Federal Reserve Chair Jerome Powell and Janet Yellen as Treasury Secretary could calm market fears and provide a rosier world economic outlook, even if that lack of chaos—often seen across the Trump presidency—is bad news for the price of gold from the outset.

Commerzbank analyst Carsten Fritsch is hopeful Yellen’s appointment will strengthen gold’s position. “Yellen has described fiscal relief as essential, for example. The low-interest-rate environment is also unlikely to change in the long term. After its current losing streak, gold should therefore begin climbing again, even if this may well take some time yet and is likely to start from a lower level.”

Biden could also become silver’s best friend, as another Kitco report stated recently. Biden is aiming to bolster support for the economy through increased borrowing, further expanding the deficit and national debt.

The report goes on to say, “He has also made it clear that he’s a big proponent of a Green New Deal, which is a mega effort to migrate the economy towards renewable energy and net zero carbon emissions.

And both of these are likely to help boost silver prices in a big way in the next few years.”

This analyst predicts that if silver breaks below $23 USD an ounce, then look for a potential move down to $20.

“That would go a long way towards shaking out weak hands, and set the stage for a strong rally into year end and through the start of 2021.”

What helps these predictions is that soaring debt levels caused by the coronavirus crisis will not simply disappear overnight. Cases continue to climb across Canada and the US, and it’s unclear what a COVID-19 winter will look like and what uncertainty that will cause for the world economic outlook. Vaccine news is always encouraging but until they’re administered to millions, that’s all they are for now—just encouraging headlines and hopeful Twitter posts.

But the ascension of Biden into the White House should boost the price of gold in the long term, even if his market-calming leadership edges the price lower in the short term.

This season, though, with the holidays approaching, you might not want to wait for the price of gold to increase as you consider selling your gold bars, coins and jewellery, considering how high the price been recently. If you’re interested in learning more about how Muzeum’s precious-metals specialists can evaluate your items with a free assessment, contact us anytime.


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