Gold has traditionally not reacted to the outcome of past U.S. elections, but the outcome of this election may have a more noticeable effect on investor sentiment. In its latest report, the World Gold Council (WGC) states that the progression of election-related uncertainty and rising geopolitical threats will add more volatility and likely impact broader macro variables. This could drive investors to evaluate how they might mitigate risk in their own portfolios and draw them towards a safe-haven asset like gold.
Due to the U.S.’s pivotal role in the global economy and the rise in geopolitical uncertainties, the upcoming presidential election and its impact on investments have raised several concerns for investors.
The WGC’s report suggests that while U.S. gold bar and coin demand seems to increase, on average, during Democratic presidencies, this is not the case with other segments of investment demand. Party affiliation does not have a consistent impact on prices during elections. However, economic policies, both domestic and foreign, of any given president are more relevant to the behavior of financial assets, including gold.
Gold underperforms around U.S. elections
The report reveals that gold witnesses two opposite trends during U.S. elections. Gold appears to do slightly better six months before the election of a Republican president but remains flat in the period post-election. Conversely, it tends to underperform before a Democratic president is elected and perform just below its long-term average in the six months post-election.
“However, none of these results are statistically significant. This may suggest that gold is not responding to the party affiliation of an elected president but, more likely, to the expected effect of specific policies,” added the report.
Gold did well during both Trump and Biden’s presidencies through a combination of policy decisions and broader global macroeconomic drivers. Gold rose by 60 percent during Trump’s presidency, increasing by nearly 30 percent pre-COVID and slightly over 30 percent during the pandemic. Under Biden, gold moved sideways initially, but gained over 30 percent during the term so far, primarily due to broader economic factors and central bank buying.
Investors to move toward safe-haven assets
As the U.S. moves closer to the election, it will continue to dominate global news. Unexpected events have the capacity to rattle financial markets amid the political shift.
In relation to the U.S. presidential election’s impact on the gold price, the WGC found that gold slightly underperforms around elections relative to its long-term average, albeit not statistically significant. During the six months following the Trump and Biden inaugurations, gold returns were roughly -2.6 percent and -6.4 percent, respectively.
During this U.S. election, rising geopolitical threats and political uncertainty will likely impact financial markets, raising demand for safe-haven assets like gold.
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