The outcome of the US elections could have a significant impact on Gold prices, according to ABN AMRO’s FX strategist Georgette Boele. If there is a Democratic victory, the impact on Gold prices would be limited. However, if there is a Republican victory and a universal tariff is implemented under a Trump presidency, we could see lower Gold prices initially. Over the longer term, these moves are likely to be reversed.
Boele notes that the evolution of the Gold market has shifted from being primarily a safe haven and jewellery market to one where investment decisions play a more crucial role. Since the introduction of Gold ETFs in March 2003, Gold has become more of a speculative asset and less of a safe haven asset. Factors such as the US Dollar, monetary policy, and real yields have become dominant drivers of Gold prices over time.
While some investors still buy physical Gold for safe haven purposes, the flows into non-physical Gold have often been dominant. Under a Democratic victory, Gold prices could see very modest support due to expectations of a modest decline in the USD and lower real yields. It is predicted that Gold prices would hover around $2,500 per ounce in this scenario.
On the other hand, a Republican victory could bring about more complex dynamics for Gold prices. In the event of a full tariff implementation, it is anticipated that inflation would increase in the initial years of the presidential term, leading to Fed rate hikes and a rally in the USD. As a result, Gold prices could decline below the 200-DMA and move towards $2,000 per ounce. However, as the USD weakens and real rates decrease over time, Gold prices would have room to rally and potentially surpass previous highs.
In conclusion, the US election outcome could have a significant impact on Gold prices, with a Democratic victory providing modest support and a Republican victory leading to more volatility. While immediate effects could result in lower Gold prices under a Republican presidency with tariff implementations, over the longer term, Gold prices could rally once again as economic conditions change. Investors should closely monitor the political landscape and its potential effects on Gold prices to make informed investment decisions.
