The US Election and the Impact on Gold
Gold has experienced a tremendous rally in 2020 and is currently around 25% up on the year so far. With just a few hours to go until the US election results, there is no doubt that the outcome will play a major role in shaping the international political and economic landscape during these extremely uncertain times. But how will this impact on the price of gold?
We know that monetary and fiscal policy, as well as international political tensions have traditionally been key drivers of precious metals prices, so let's look back at the impact of previous presidencies.
Historical presidential impact
Carter and Reagan
Will the next President be a Jimmy Carter – who saw a 326% increase in the gold price, or a Ronald Reagan - who saw a 28% decrease? Perhaps that’s not a fair question. Since Nixon ended the convertibility of the US dollar to gold in 1971, the gold price had largely been rising, but despite falling under Gerald Ford, it soared under Ford’s Democratic successor.
Geopolitical events such as the Iran hostage crisis and the Soviet invasion of Afghanistan, combined with double-digit inflation in the US saw the gold price surge to $850.00 per ounce (up 539% from the price at Carter’s inauguration 3 years earlier).
By the time Carter left office, the gold price had retreated to $566.75, 326% higher than the day he became president. Carter’s successor, Ronald Reagan, saw the gold price drop to $284.25 in early 1985 (an almost 50% drop from his first day in office) as the US appeared to be in a much stronger position economically. At this point, the US economy was well into its recovery (following the earlier recession) and formal negotiations had reopened with the Soviet Union, following the apparent success of the ‘rollback doctrine’.
When Obama left office in 2017, the gold price was 40% higher, and the silver price was 50% higher, than the day he took office in 2009. The gold price ranged between $849.25 and $1,895.00 during Obama’s 8 years in office, while the silver price ranged between $11.32 and $48.70. During this period, gold experienced significant volatility, and offered significant potential for investors to realise healthy returns.
Concerns over the US Debt Ceiling in 2011 caused the gold price to surge to $1,895.00 (122% higher than the day Obama took office) as some people feared the US government could default on its debt. The silver price also rose to $48.70 (330% higher than Obama’s first day in office) in April 2011, as retailers suffered shortages of silver bars and coins – this is in line with a noted historical pattern of silver rallying quickly and sharply shortly after a gold price rally ignites.
The US-China trade war, events in North Korea and the threat of military action following the assassination of the Iranian general, Qasem Soleimani, have all led the gold price to increase under President Trump, but it’s the coronavirus crisis that has really caused the price to surge.
On 6th August this year, gold hit an all-time high of $2,067.15, 72% higher than Trump’s first day in office, as investors flocked to safe havens to assess the impact of the coronavirus crisis and the effects of quantitative easing. Silver is now trading at over $20/oz, but hit $28.89 on 1st September 2020 (71% higher than the day of Trump’s inauguration).
Does it really matter who wins?
The polls are currently suggesting a Biden win, but does it really matter for the gold price? Gold has long been regarded by many as a long term investment and safe haven asset. As the global economy attempts to navigate through and recover from the devastating effects of COVID-19, many analysts believe that demand for gold will remain healthy regardless of who is in power. According to Luca Paolini at Picet Asset Management, ‘political risk is high, the dollar is weakening, interest rates are rock bottom, so gold is attractive.’
The Royal Mint Limited is not authorised by the Financial Conduct Authority to provide investment advice and nothing within this article should be construed as investment advice. Bullion markets can be volatile - the value of gold may fluctuate dependent on market value and past performance is no guarantee of future results. Investing in precious metals involves a degree of risk which may make it unsuitable for certain people. Before making any investment decision, you may wish to seek advice from your financial, legal, tax and accounting advisers. You should carefully consider the risks associated with investing in gold, taking into account your own individual financial needs and circumstances.
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