US Election: Will Gold win in all scenarios? – Saxo Bank

Gold’s recent strong performance, with a 20% rise year-to-date and a high of USD 2,531.75 in August, has been driven by a combination of factors that have made it an attractive investment. There are several reasons that the post-election environment could continue to support the gold price, which has handily outperformed the S&P 500 index and Nasdaq 100 index through early September of this year. As of 10 September, gold is up over 21%, while the S&P 500 index is up shy of 15% and the Nasdaq 100 12.5%.

Here are some of the reasons, both pre- and post-election, that gold has risen and could continue to perform strongly over the coming foreseeable time frame, up to a year or more.

Fiscal profligacy. The uncertainty surrounding the upcoming US presidential election brings intense unease on the course of budgetary policy and overall market stability. First, Trump and then Biden threw caution to the wind is blowing up the federal deficits in good times and times terrible (the pandemic response), with the US debt ripping above 120% of GDP. It doesn’t appear either party is set to deliver on fiscal austerity, which raises inflation risks, a gold positive. Trump wants to cut taxes with no credible plans for reducing spending, while Harris offers some new tax policy ideas and would like to extend Biden’s huge fiscal programmes. Either administration would inevitably expand the deficit in an economic slowdown. Even if we have a president, Harris, or Trump with a divided Congress, meaning political gridlock, it means that point 3 below – the Fed – has to work much harder by easing policy.

General safe-haven appeal.  Gold has long been a haven in times of trouble, and we could be nearing the end of an incredible run for stocks if we are headed toward a recession, something the bond market and its recent “dis-inversion” seem to be telling us. A dis-inversion happens when short-term yields fall below long-term yields, as the market expects the Fed to cut rates.

Fed rate cuts. As noted above, whether we are heading toward a slight slowdown or a full-blown recession, the US Federal Reserve’s monetary policy decisions will significantly shape gold’s trajectory. A rate-cutting cycle will begin this month at the Fed’s 18 September FOMC meeting, and a lower interest rate environment would likely boost gold’s appeal, especially if the Fed ends up cutting more than expected in coming months. Lower rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors. Historically, gold has performed well during periods of falling interest rates.

Geopolitics and “de-dollarization”. Furthermore, the broader global environment—characterised by geopolitical tensions, de-dollarization efforts by central banks, and economic uncertainty—continues to underpin demand for gold. In particular, central bank purchases of gold and strong retail demand in key markets like China have helped sustain the rise of shiny metals as investors seek stability amid volatile economic conditions. There may be more of an angle here if Trump wins and delivers on his substantial tariff threats as a widening group of countries look to transact outside the US dollar system.

Overall, the combination of geopolitical risks, fiscal concerns, and potential shifts in monetary policy, particularly in the wake of the US presidential election, makes a bullish case for gold as a hard asset. Note the implications of the phrase “hard asset” Gold should always be seen chiefly as something that preserves its value rather than something that will go significantly higher in real terms (beyond the inflation rate). Investors will likely continue viewing gold as a hedge against the uncertainties both economic and policy forces pose.

Over the past decade, gold has provided an average annual return of 8.4% in U.S. dollars, consistently outpacing inflation. This makes it an attractive option for long-term investors seeking to preserve purchasing power.

How to invest or actively trade gold?

Physical gold: Purchasing physical gold in jewellery, coins, or bars provides direct exposure to the metal but involves considerations such as secure storage, insurance, and higher trading costs.

Gold ETFs/ETCs: Exchange-traded funds or commodities offer a convenient way to invest in gold without holding physical metal. These products track gold prices closely and can be traded easily on exchanges.

Gold mining stocks/ETFs: Investing in gold mining companies or ETFs that hold a basket of mining stocks provides exposure to gold prices. However, these investments carry operational risks and may exhibit higher volatility than gold. In recent years, the combination of inflation and interest rate hikes has left some gold miners struggling relative to the price of gold amid rising costs of financing, labour, and materials.

Spot gold trading: A leveraged product that may suit traders using risk management tools, while long-term investors may find ETFs to be the better option. At Saxo, you can use leverage to trade on the price of gold against 12 different currencies – including the US dollar, euro, yuan and Swiss Franc – and silver.

Before proceeding, you need to consider your risk tolerance, time horizon, and personal financial goals. Gold is considered a relatively safe precious metal to invest in, but the price still responds to changes in other markets, such as the dollar and government bond yields.

Choosing when entering a trade or investment is always a challenge, whether it’s a stock or a commodity like gold. With that in mind, a staggered approach may be the best way to enter a new position, i.e., splitting the purchase into smaller portions spread over a predetermined time frame.

Last Updated on 3 months by News Desk 1