23 Oct 2024

• The influence of the U.S. presidential electionhe influence of the U.S. presidential election

•    old prices is anticipated to be substantial, given the contrasting economic perspectives of the candidates—Republican Donald Trump and Democrat Kamala Harris—on critical issues like tax policies, tariffs, and trade relations, especially with China. 
• Gold is commonly regarded as a safeguard against political turmoil and uncertainty, and this election cycle is likely to follow that trend. Historically, the geopolitical and economic unpredictability surrounding U.S. elections tends to elevate the demand for Gold. The World Gold Council emphasizes that the U.S. plays a crucial role in the global economy, making its elections particularly impactful on international markets. The differing economic strategies of the candidates—Trump’s inclination towards tax reductions and protective tariffs versus Harris’s probable more progressive fiscal approach—could alter investor attitudes towards financial markets, including Gold.
•  According to the World Gold Council, there is typically an uptick in U.S. demand for Gold bars and coins during Democratic administrations, although this pattern does not uniformly apply to other Gold investment types. While party affiliation may not be a direct catalyst for changes in Gold prices, the economic policies enacted by the victorious party—both domestically and globally—are more influential factors in determining Gold’s market performance.

JPMorgan: Republican victory could boost Gold

• JPMorgan indicates that the strength of Gold is expected to persist as the election approaches, especially if there is a Republican sweep. The firm believes that a Republican win would foster a more advantageous climate for Gold, largely because of the party's track record of tax reductions and pro-business initiatives. In contrast, a Democratic win might present a less supportive environment for Gold, contingent upon the economic policies that are enacted.
• Historically, Gold has shown stronger performance in the six months leading up to a Republican victory, as investors brace for potential changes in policy. For instance, Gold experienced a return of about -2.6% in the six months after Trump's inauguration in 2017, while it declined by -6.4% following Biden's assumption of office in 2021. These variations indicate that the period prior to elections may hold greater importance for Gold prices than the aftermath of the elections.

Policy potential impacts on Gold prices

• The economic strategies implemented after the election, particularly those related to inflation, interest rates, and government spending, play a vital role in determining Gold's market performance. The policies proposed by both candidates will have a direct influence on inflation expectations, which are intricately linked to fluctuations in Gold prices. 
• During Trump's previous administration, Gold experienced gains due to trade conflicts and protectionist measures that devalued the dollar, enhancing Gold's appeal as a safe-haven asset. Conversely, Harris may advocate for policies that promote increased government expenditure, potentially driving inflation and bolstering Gold prices, though through a different approach
• Although no election result can ensure a definitive trend for Gold, the policy choices made by the new administration will be essential for traders in the Gold market.

BRICS nations and their growing Gold reserves

• The BRICS nations, holding over 20% of the global gold reserves, are reportedly considering the establishment of a gold-backed currency as a possible challenge to the supremacy of the U.S. dollar. This initiative could serve as a means to bolster their economic autonomy and reduce exposure to the volatility of the dollar, especially in light of ongoing geopolitical uncertainties. Notably, Russia and China together represent an impressive 74% of the gold reserves within BRICS, positioning them as key influencers in the movement towards reducing reliance on the U.S. dollar.
• In recent years, Russia and China have taken significant steps to increase their gold reserves, viewing the precious metal as a safeguard against the prevailing influence of the dollar. As of 2024, Russia possesses around 2,300 tonnes of gold, while China has accumulated more than 2,100 tonnes. These substantial reserves enhance their financial stability and indicate a rising trend among BRICS nations to shift towards assets perceived as more secure and resilient to inflation compared to traditional fiat currencies.

Record central bank Gold purchases

• .In 2023, central banks around the world have started to diversify their foreign-exchange reserves, moving away from reliance on U.S. dollars, with Gold emerging as a favored substitute. Presently, approximately 58% of global foreign reserves are maintained in dollar-denominated assets. Nevertheless, there has been an increase in the trend of enhancing non-dollar reserves, with Gold significantly benefiting from this shift. While the rate of Gold purchases by central banks has experienced a slight deceleration in recent months, the overarching structural trend continues to be robust.
• In 2022, central banks around the world achieved unprecedented levels of Gold acquisitions, totaling more than 1,080 tonnes. This momentum carried into 2023, as an extra 1,037 tonnes of Gold were incorporated into global reserves. The heightened demand from central banks has contributed to a consistent increase in Gold prices, with numerous analysts forecasting that this trend of accumulation will continue into 2024 and beyond.