Election and Gold Price: How Elections can Affect Gold Price?

The US elects its 47^th President in less than two weeks. Financial markets are moving on betting markets veering sharply towards a Trump victory though the swing state polls are still within the margin of error. This has pushed gold to new all-time highs, but is this solely down to the election, or to other drivers?  

Up over 30% in the past 12 months, the precious metal has performed incredibly strongly in 2024 with just two months in the red, while hitting new peaks on a consistent basis ^[1]. Of course, gold is regarded by many as a long-term investment and a safe haven asset. These attributes have helped it navigate through multiple narratives from geopolitical tensions and interest rate cut optimism, to continued central bank buying and robust Asian purchases. 

The Historical Role of Elections in Influencing Gold Prices 

With monetary and fiscal policy amongst the key drivers of precious metals prices, elections in the United States can have a direct impact on the price of gold. Add in international geopolitical and political tensions, and it’s no surprise that presidential, and also midterm elections, are closely watched by investors.  

Regarding the latter, a World Gold Council report released ahead of the 2022 midterms and using data going back to 1970, calculated that gold prices have risen 62% of the time during the six months following a midterm election, with a median rise of 2% ^[2]. 

For presidential elections, most observers agree that economic policies, both domestic and foreign, of any given president are most relevant to gold price movements over the long term. These policies influence the direction of the dollar, interest rates and bond yields, which have the biggest impact on price action. That means major global macroeconomic drivers are key, in contrast to specific local dynamics.   

Ultimately, most research tells us that presidential elections have not typically had a major effect on gold’s performance, but irrespective of party affiliation and the victor, any near-term geopolitical risks are highly relevant and serve to underpin support for gold. 

How Have Elections Affected Gold Price Movements? 

According to a study by the Gold Council, gold slightly underperforms around elections relative to its long-term average. However, the numbers are not very consistent and none of their results are statistically significant. This is also evidenced by the fact that gold does not consistently outperform during the full term of a president from one party over another. 

For your guide, during recent administrations ^[3,4]: 

• The Obama presidency saw gold rise 40% higher through to when he left office in 2017. Concerns over the US debt ceiling and a potential government default boosted prices. 

• The first Trump administration saw gold rise by 53%, increasing by 30% pre-Covid on the US-China trade war and events in North Korea. Prices surged over 30% during the pandemic, hitting record highs of more than $2,000. 

• Under Biden’s current incumbency, gold initially moved sideways before gaining more than 30%. War in Ukraine and the Middle East have seen safe haven demand, while inflationary pressures and then expectations for rate cuts have helped gold bugs. 

Geopolitical issues around respective presidential candidates tend to play out over several months as administrations roll out their policies. Certainly, one issue to note is that many gold watchers have cited the uncertainty of the current election impacting on investor sentiment and driving demand for gold. 

Gold Price Movements This Year and Looking Ahead 

Gold’s record-breaking rally this year has been marked by shallow corrections that have caused buyers to return. Most recently, a break above $2,700 pushed prices to more record highs this year ^[5]. The precious metals market has witnessed an unprecedented strong uptrend this past year, with gold trading up more than 30% year-to-date, with only minor corrections seen during this extended bullish move, which at this point, shows little sign of ending. 

There have been several bullish drivers throughout this period, including the risk of fiscal instability and uncertainties surrounding the US presidential election to its safe-haven appeal amid heightened geopolitical tensions, and de-dollarisation. And now also rate cuts—not just by the Fed, but by other central banks as well—have reduced the cost of holding non-interest-paying investments in gold. 

The latter potentially supports increased demand for gold-backed ETFs from fund managers, especially in the West, who up until May had been net sellers since the FOMC began its aggressive rate hikes in 2022. In fact, physically backed gold ETFs enjoyed their fifth straight month of net inflows in September. 

Central bank buying demand has slowed recently, with August seeing their lowest net purchases since March. Notably, the People’s Bank of China ended its 18-month buying spree in May, with record prices deterring more purchases. But central bank buying is expected to remain strong amid the current economic climate, geopolitical tensions and the de-dollarisation theme. 

The longer-term issue centres around US fiscal and debt sustainability. One investment bank projects that US national debt will hit a new record high as a share of the economy only three years from now. That makes gold an attractive asset, especially with lingering concerns over funding needs and their impact on the US Treasury market. Neither Harris nor Trump appear to have prioritised fiscal consolidation. Indeed, spending commitments are likely to increase in order to tackle climate change, defence spending and demographics. 

Possible Election Scenarios, Policies and Their Impact on Gold  

1. Trump Restricted (Republican President and House, Democrat Senate) 

The main characteristics of the first Trump Trade are likely to persist in version 2.0, albeit in diminished magnitude if the Republicans do not win Congress. Targeted fiscal spending, tax cuts and deregulation would get a boost, though Trump would be forced to make concessions. There might be more uncertainty around trade and global conflicts with Trump’s planned high tariffs on China and global goods. Nevertheless, dollar volatility may increase with a divided government and increasing gridlock with the status quo. 

Any contested election decision and ultimately a constrained second Trump presidency would see rising global risk aversion on the back of US political uncertainty and possible early Trump focus on foreign policy. This would see USD bid but also gold. 

2. Blue Tide: Divided government (Democrat President and Senate, Republican House) 

In this scenario with neither Harris nor Trump controlling the two chambers, post-election uncertainty is likely to increase dollar volatility. Much would depend on how quickly fiscal policies can be agreed and implemented but Democratic changes would be less impactful. However, more pragmatic leadership does argue for some fiscal restraint dampening price pressures relative to Trump. That could see gold go mildly higher. 

Foreign policy would be expected to be less tense under Harris, with closer collaboration with global allies. Middle East tensions would likely persist along with a hard line towards China and backing for Taiwan. As trade-related uncertainty declines and the growth outlook improves, real yields are likely to increase moderately. This mild pick-up in inflation could see a portion of the market acquire gold as a long-term hedge. 

3. Red Sweep: Trump clean sweep (Republican President and Congress control) 

Gold should see demand in a second Trump administration, albeit with mixed themes to contend with. Occasional flare-ups on the world stage with Ukraine potentially receiving less support will mean a haven bid in gold. But a stronger domestic focus and ultimately growth may temper appetite for the precious metal.   

The extension and potential enlargement of tax cuts, with spending re-prioritised may bring debt sustainability issues to the fore. Stronger growth but higher inflation from higher global tariffs is expected to result. In turn, this looser fiscal policy is likely to force the Fed to keep rates elevated and underpin firm yields. Gold might continue to outperform as a hedge against this range of risks in the meantime. 

Gold Prices in Recent Weeks 

As we draw closer to US election day, recent price action has continued to be bullish. This is primarily due to the increasing likelihood of a Donald Trump victory in the upcoming election. However, it should be noted that Treasury yields, and the dollar have also risen, which is typically not positive for the precious metal. 

Indeed, the normal inverse correlation between gold and the dollar has broken down in recent months. The greenback has gained over 4% since the start of September, but there has been no negative reaction in gold. 

The Federal Reserve’s Policy Moves and Their Influence on Gold 

Gold prices may depend heavily on the Fed and how fast and far it cuts interest rates. Lower borrowing costs are positive for gold as it doesn’t pay any interest. The strong expectations for policy easing have underpinned support for the precious metal through this year. 

Yet in recent weeks, the future rate cut path has been pared back with over 50bps of rate cuts priced out until March next year. Additionally, with a 25bps rate reduction still baked into November, markets now predict the December FOMC meeting is a coin flip chance of another cut. This means that gold may not enjoy the softer rate environment that was predicted only a few months ago. 

Going forward, much will hinge on the US economic data, which has been surprisingly positive for many months longer than most economists forecast.   

Discover how Federal Reserve policies influence gold prices in our detailed analysis. Read our exclusive article ‘Unveiling the Connection: Gold Prices and Interest Rates’ to deepen your understanding of this crucial relationship. 

Conclusion 

US elections are historic events which can often herald profound change, both for domestic and global policies. But the party connection of the prospective presidential candidates does not have a consistent impact on gold prices during US elections. Instead, economic policies of any given president are more relevant to the behaviour of gold price action through the years of an administration.    

In the meantime, enjoy the build-up to November 5, and watch other drivers of the gold price like the dollar and US Treasury yields, and underlying geopolitical issues arising from the Middle East and around the world.  

Visit the Vantage US Presidential Election Page to stay updated with the latest information and news on the US presidential elections. Open a live account today and start trading the election volatility with Vantage. 

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