Gold prices can be significantly influenced by the outcome of US elections. According to ABN AMRO’s FX strategist, Georgette Boele, the impact on gold will vary depending on whether the election results favor Democrats or Republicans.
Impact of a Democratic Victory
If the Democrats secure a partial or full victory in the elections, the effect on gold price might be minimal. Under such circumstances, gold price could experience only a slight increase. This is due to a potential decline in the US dollar and lower real yields. Thus, gold prices may hover around $2,500 per ounce.
Effects of a Republican Victory
A Republican win presents more complex dynamics. In the event of a full tariff implementation under a Trump presidency, we might see an initial rise in inflation. This could lead the Federal Reserve to raise interest rates, causing the USD to strengthen. Consequently, gold prices may drop below the 200-day moving average (DMA) and approach $2,000 per ounce. Over time, as the USD weakens and real rates fall, gold price are expected to recover and possibly exceed earlier highs set in 2024.
The Evolving Role of Gold
Gold’s role has shifted from being a mere safe haven to a significant speculative asset. Since the introduction of Gold ETFs in March 2003, investment decisions have increasingly influenced gold price. While physical gold remains a safe-haven asset for some investors, the dominance of non-physical gold investments has become more pronounced. Changes in the US dollar, monetary policy, and real yields are now major drivers of gold market trends.
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