Despite nearly three months of trading sideways, gold’s prospects continue to look excellent.
The overall upward trend in gold began in March 2019 when the Federal Reserve announced interest rates would be headed back down. The announcement was about more than the mere next step for interest rates. It was a declaration the economy remained weak after a decade of highly accommodative monetary policy. Gold responded favorably to the acknowledgement by the central bank that interest rates likely would have to remain low for the foreseeable future.
The general outlook for gold remains excellent. Its current underlying drivers – generous monetary policy and a record-level federal deficit – are not expected to diminish anytime soon. But some observers are wondering how the results of the upcoming presidential election might alter gold’s fortunes. What will happen to gold if President Trump is reelected? How might gold respond to four years (at least) of a Biden administration?
Here’s my take: There will be little difference in the performance of gold regardless of who wins on November 3. Yes, there’s a great deal of ideological separation between the parties. However, for all of those differences, both roads – Republican and Democratic – lead to a fiscal agenda that will send the nation’s debt levels soaring ever higher. This reality, entwined with a near-term monetary policy we already know will stay very accommodative, means those aforementioned underlying drivers of gold are here to stay. However that translates into bad news for the currency and the economy, it’s difficult to deny that gold is looking at robust days ahead.
Public Policy Group Says Federal Debt Will Skyrocket No Matter Who Wins Election
The Committee for a Responsible Federal Budget (CRFB) has taken a close look at the anticipated agendas of both President Donald Trump and Joe Biden. Here is their sobering conclusion: Fiscal irresponsibility will remain the rule, and Americans can expect the national debt to continue climbing to the heavens no matter who is sitting in the Oval Office.
According to the CRFB, a Trump reelection would result in another $5 trillion added to the federal debt by 2030. As it stands presently, the debt recently surpassed $27 trillion and now represents 98% of U.S. gross domestic product (GDP). An additional $5 trillion would stretch the debt-to-GDP ratio to a mind-boggling 125%.
Not to be outdone, Joe Biden has even bigger plans when it comes to unbridled spending on behalf of his agenda. The CRFB estimates the national debt would climb another $5.6 trillion under Biden, propelling it to 128% of GDP.
The numbers alone are frightening enough. But what’s even more cringe-inducing is how practically no one – Democrat or Republican – sees anything concerning about record-level federal deficits and debt. There was a time that the topic of reducing the national debt was a compelling and resonant campaign theme. Not anymore. Now, in what has become a sort of alternate reality when it comes to the nation’s indebtedness, lawmakers and even the general public on both sides of the political dividing line seem to be of the opinion that it’s debt reduction which represents fiscal irresponsibility now.
Viewing the current fiscal landscape in the context of ongoing Fed policy initiatives, analyst and former Federal Reserve advisor Danielle DiMartino Booth concludes the environment going forward bodes well for gold. DiMartino Booth is confident this outlook will remain intact because it will be all but impossible for anyone occupying the White House to get a handle on the Fed.
“I don’t know any leader right now being considered to run the country that would have the strength given the (present) fiscal backdrop,” DiMartino Booth told Investing News. “Given how deep the recession is, and how prolonged it looks like it’s going to be — who would even begin to try and rein in the Fed right now, because they need the money printers, so to speak.”
Also speaking to Investing News about the current fiscal and monetary outlook and its anticipated effect on precious metals was analyst Lobo Tiggre of Independent Speculator. Tiggre sees big things in store for precious metals and commodities, more generally, because of the worldwide emphasis on fiscal stimulus and highly accommodative monetary policy.
“We will see a commodity supercycle with the precious metals, the energy commodities and industrial metals all surging higher,” Tiggre said. “Either because the economy recovers and the raw materials of the economy are needed, or because it doesn’t, and the stimulus really opens the inflationary floodgates and includes infrastructure plans and other investing that would be good for commodities.”
Civil Unrest Could Continue Regardless of Election Winner
There’s another reason to think precious metals could remain in favor following the election, no matter who the winner is: the persistent climate of political and social unrest. The broad narrative suggests the protests and riots that have captured so much of the world’s attention will evaporate immediately upon news of a Biden victory. That’s by no means a foregone conclusion, in my opinion.
Recently, Black Lives Matter Los Angeles co-founder Melina Abdullah told ABC News that she’s not supporting Biden because he’s part of the same “violent white supremacist” system she claims exists currently. Separately, Lawrence Nathaniel, co-founder of “I Can’t Breathe” in South Carolina said both “Joe Biden and [President Donald] Trump…are blinded by the struggles that the lower end of Americans are feeling today.” It could be inferred from such sentiments that widespread civil unrest will remain a part of the American landscape regardless of who wins the election.
For her part, former Fed advisor Danielle DiMartino Booth sees the social upheaval continuing and adding further support to gold. “Gold and disruption go hand-in-hand,” she said in her remarks to Investing News. “So to the extent that there was continued and increased social unrest after the election, that I think would benefit gold prices for sure.”
Based on the current outlook, there’s no reason to think the underlying fundamentals driving gold right now are going to wither anytime soon. Whoever wins the election must defer to the will of the pandemic and its economic consequences, which are likely to remain substantial for years. As a result, it’s reasonable to assume we’ll continue to see extremely dovish monetary policy and massive fiscal stimulus for many years. Also, there’s good reason to believe widespread civil unrest will continue even if the presidential administration changes. Given these conditions, it seems unlikely there will be a near-term change to the existing pro-gold environment.