Neither Trump nor Biden will pursue a strong dollar policy
The underlying conditions are favourable to gold, of course. Low rates and money printing; international tension over trade, especially with China; civil unrest; inflation potentially looming; and, not least, the potential re-emergence of corona as winter sets in.
There are more tailwinds than headwinds for gold, I’d say – whoever resides in the White House next year. So my first instinct says more of the same. Having had a great run up this year to a high of $2,089/oz, gold is now meandering about in the $1,900s. Gold has a tendency to do this. In fact, most assets do after a run up. They go through a period of consolidation, digesting the higher prices.
In the bull market of the 2000s, gold would go into periods of consolidation that would last 12 to 18 months after big run ups. Perhaps we are in one such period now and we have another year or more to wait before gold sets off again. It would certainly be typical.
On the other side of the coin, what happens to the US dollar under Donald Trump or Joe Biden?
That is perhaps the most important question of all. I can’t see either of them pursuing strong dollar policies, so my inclination is that it gets weaker. The US dollar index currently stands at 92, having been as high as 103 (once under Trump, once under Barack Obama). It’s in a downtrend and I reckon we could see it in the 80s, or even the 70s, before we see it above 100 again.
A brief history of gold under US presidents
In the months after Trump was elected in 2016, gold fell sharply, going from over $1,300/oz into the low $1,100s. But then, in his first year, gold rallied by $200. It started 2017 at $1,150 and ended the year at $1,350.
Looking back at gold under previous presidents – and I’m not sure how valuable an exercise this is, as circumstances are so different – gold had a great first year in Obama’s first term, reaching all-time highs. It then endured four of its worst ever years in his second.
Under Bush, gold had eight years of bull market, going from sub-$300/oz to over $900/oz. Of note, however, is that when Bush was elected for his second term, gold pulled back by 10%.
When Bill Clinton was first elected, gold pulled back. But during his first year in power, 1993, gold rallied. His second term was a bad one for gold – it slid to all-time lows at $250/oz.
Gold fell under George Bush senior in his one term. It actually rallied quite strongly during Ronald Reagan’s second term (though it declined after he was elected). And in Reagan’s first term it was about the worst investment you could have made, going from more than $600/oz to below $300/oz.
In short, looking back at first terms and second terms, Democrat or Republican, no real pattern emerges. The only minor point of note is that sell-offs do seem to follow most elections in the November to January timeframe, before the incumbent takes office.
My finger is not on this particular pulse, but I have a feeling that Trump will win this election. Biden feels to me like the guy who should have got the gig back in 2016 when the Democrats gave it to Hillary. But, hey, hindsight.
Certainly, it is going to be close. The postal voting, the swing states – these are the crucial margins. But I can’t see a barnstorming bull market for gold being caused by whoever wins; it will be other circumstances that drive it.
So, in conclusion, I’m going to say that gold sells off whoever wins – though not too dramatically. It will be more a sell-off of the “consolidation-in-a-bull market” variety rather than the beginning of a bear.
Bottom line and longer term: whoever is president, it won’t make much difference.
Reference: MoneyWeek
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