US election result could be next driver after Gold’s record-setting upsurge

• Gold reached fresh all-time highs in 2024 and its value increased sharply during both Trump’s first term and Biden’s presidency. 
• US election results haven’t historically had an immediate impact on Gold prices, but the policies of the administration in charge have.
• Harris-Trump divergent views about tax cuts, tariffs on imports, or the relationship with China could all impact the outlook for Gold.

Gold prices have reached fresh all-time highs this year, making it one of the preferred choices for investors amid rising geopolitical tensions and as the world’s main central banks, including the US Federal Reserve (Fed), have begun interest-rate cutting cycles. The result of the US presidential election has the potential to influence both factors, making it a crucial event for financial markets and, more specifically, the Gold’s price outlook.     

Voters will head to the polls on November 5 to select the 47th President of the United States (US). After President Joe Biden ended his campaign and endorsed Vice President Kamala Harris as the Democratic presidential nominee to race against Donald Trump, election polls started to show that it won’t be as easy as initially expected for Republicans to win.

What do the polls say?

With two weeks to go until finding out who the next President of the US will be, polls point to a range of outcomes. According to the most recent USA Today/Suffolk poll, Harris leads by a single point, currently standing at 50% vs. 49%. The TIPP poll has Trump leading by one point, while the Marquette poll has them tied at 50%. 

Source: RealClearPolling.com

It is fair to say that it will be a close race on November 5. For the sake of argument, we will assume that whoever wins the election, will also have a majority both in the Senate and the House. If that’s not the case, it will be a divided government, making it much more difficult to evaluate the potential impact of policy changes on financial assets.

What matters for markets?

“Elections have not, historically, had a significant or immediate effect on Gold's performance but regardless of the winning candidate, near-term geopolitical risks remain high and may serve as a catalyst for Gold,” says the World Gold Council in a recent report.

Still, market participants will scrutinize proposed economic and fiscal policies, as well as how foreign relations could change under each nominee, to try to get a clear picture of what to expect in the next four years to come.

Harris thinks that prices are “still too high” following a period of strong inflation in the US. She wants to focus on empowering the middle class while fighting against price gouging and assisting first-time homebuyers. Harris pledges to lower taxes for low- and middle-income families and wants to support entrepreneurs and small businesses by offering tax breaks.

Trump also wants to fight against inflation and “make America affordable again” but he aims to do that by lowering energy costs via expanding Oil and Gas drilling deregulations within the US. Additionally, Trump has voiced his opposition to high interest rates, even though he has no direct control over how the Federal Reserve (Fed) sets the monetary policy. 

Trump looks to extend the tax cuts that he signed into law in his first term, entitled “the Tax Cuts and Jobs Act of 2017”, which is scheduled to expire at the end of 2025 and included reductions in corporate tax rates and lower tax brackets. Finally, Trump is in favor of mass deportation of undocumented immigrants to solve the housing shortage issues and lowering prices. 

Earlier in the year, Trump said that he would impose tariffs of 60% or higher on imported goods from China if he were to win the election. Trump also noted that he is willing to impose a blanket 10%-20% tariff on all imports.

On the other hand, Harris is expected to carry on with the Biden administration's added tariffs on $18 billion worth of Chinese imports, encompassing solar cells, semiconductors, electric vehicles and some steel and aluminum products. 

How could US election outcome influence Gold prices?

To devise a theory on how Gold prices could move under each administration, we could look at Gold’s performance under Trump’s first term and Biden’s presidency, assuming that Harris will adopt similar policies with a win.

When Trump took office in January 2017, Gold was trading at around $1,200. After fluctuating between $1,150 and $1,400 until mid-2019, prices shot higher, rising above $2,000 for the first time in August 2020. When Biden took office in January 2021, Gold was trading slightly below $2,000. Following a pullback toward $1,600 in the third quarter of 2022, the precious metal went into an uptrend, reaching a new all-time high above $2,700 just recently.

In both cases, Gold prices registered impressive gains. Does that mean that regardless of who becomes the next US President, Gold will rise? Of course not. 

“The Gold price typically responds to key drivers, such as the direction of the US dollar, interest rates or perceptions of risk, which can be, of course, influenced by economic, fiscal and monetary policies of a specific administration – irrespective of party affiliation,” says the World Gold Council report. 

There were several factors that influenced Gold prices in a much more significant way than who was the US President during Trump and Biden’s presidencies. The Covid pandemic, the high-inflation environment that followed, the Russia-Ukraine war and escalating geopolitical tensions in the Middle East all had noticeable effects on prices of not just Gold, but many other financial assets as well.

Nevertheless, we can devise some scenarios, in which we can isolate some factors that could drive Gold prices.

Republican win

If Trump wins the election and ramps up tariffs on imports as proposed, this could have an inflationary effect on the prices of goods and services in the US. Whether this could be offset by lowering energy costs is difficult to know. If Trump’s tariffs lift inflation expectations, they could also make it difficult for the Fed to continue to lower interest rates. 

Additionally, tariffs on Chinese imports could hurt the Chinese economy, which is already not in a good shape. In this scenario, Gold prices could come under pressure, with investors becoming reluctant to bet on further policy easing by the Fed and other central banks and reacting to a potentially worsening demand outlook for the yellow metal.

On the other hand, Trump could also try to pressure the Fed to lower interest rates. If he manages to lower housing costs, the Fed could see further progress in disinflation and go on with easing. In this case, falling Treasury bond yields could allow investors to move toward Gold and help prices edge higher.

Democrat win

If Harris lowers prices and makes housing more affordable as proposed, this could have a disinflationary effect, allowing the Fed to continue to ease the policy, which could be a positive development for Gold prices. On the flip side, reduced taxes for low- and middle-income families could pave the way for higher disposable income, causing inflation to remain sticky. 

Regarding the relations with China, it is not easy to conclude that China will be in a better position economically during Harris’ presidency. A continuation of Biden’s tariffs on Chinese imports is likely to continue to weigh on the growth outlook.

Summary

In conclusion, it’s very tricky to draw a clear relationship between who runs the US government and the price of Gold. Politics move slowly and it takes a very long time for proposed policies to be implemented, especially so if there is a split government. Moreover, there are many other aspects that could affect both demand and supply-side dynamics for Gold. Hence, it could be risky to decide on a Gold-trading position based on who sits in the White House.