While everyone is holding their breath in the face of uncertainty about the outcome of the American elections, gold continues to chart its course, benefiting from both the possible contestation of the result across the Atlantic and the pandemic context that is leading central banks to adopt dovish policies that are likely to favor the demand for gold as a valuable reserve. The dovish policy is to promote economic growth by all means, inflation not being a concern. In this context, many analysts make predictions about the yellow metal. We went to see the different trends of the oldest safe-haven security to offer you a digest of scenarios and a look back at certain historical episodes. When gold finds itself at the heart of the American elections, zoom in on the major trends for the precious metal at the heart of the political turbulence.
Once upon a time in America: the American gold rush, a story that lasts
It must be said that this little reminder of history makes us aware of the importance that Americans give to the precious yellow metal.
It is in 1799 in North Carolina that the gold rush began: after the discovery of a gold nugget weighing about 8kg on a farm property, the adventure continued and spread to the State of Georgia, where thousands of people flocked in the hope of finding the precious. In 1829, the great movement to find gold is in full swing, monstrous discoveries are made in North Georgia Mountains.
However, it was in California that the movement was amplified since the California Gold Rush or the conquest of the West became a worldwide movement, and contributed to create the myth of the American dream. It is on these arid lands of the West that the American government of the time and many Europeans came to criss-cross the lands from the Mississippi River to the Atlantic. Thousands of pioneers as they were called at the time crossed the plains of America in search of the precious metal. In short, this gold rush did not only have positive consequences, as disease, famine and malicious behaviour tainted the phenomenon. The pioneers sought profit above all, before thinking of their companions.
Today, it is another gold rush that we are talking about, but it helps to put into perspective the origin and historical interest of Americans in the precious yellow metal.
Gold and the dollar: I love you too
For many years, gold and the dollar have been moving in inverse correlation, but this has not always been the case.
In fact, this summer, an ounce of gold reached a record level far exceeding the dollar, and following the curve of a well-named brother, Bitcoin (BTC). In short, let's return to the relationship between gold and the dollar: no one is supposed to ignore that when the price of the yellow metal rises, the dollar falls because gold mechanically becomes cheaper for buyers with other currencies. And this is the same case for the Euro, which follows more or less the same path. In short, when the American economy is attractive, gold falls, and when it is not, it keeps on rising.
Thus, for all investors, whether novice or experienced, the lower the dollar, the more interesting it is to invest in gold. The American context being that of a heavy budget deficit, accompanied by a vast Trump administration stimulus plan reaching $300 billion, or 15% of GDP, I will leave you to imagine the degraded landscape of our neighbors across the Atlantic.
Gold has reached its highest levels for 6 consecutive weeks, just like Bitcoin, which ignites the cryptosphere by reaching $15,000 on the eve of the American election results, which are being closely followed by investors.
While the dollar reached its lowest level in two years, a phenomenon accentuated by the forecasts of some investors who would give Joe Biden the victory. Indeed, analysts predict that a victory of the Democratic candidate would pave the way for a fiscal stimulus package larger than that anticipated by Donald Trump and thus an unprecedented rise in the price of gold.
Some analysts such as Ole Hansen predict that the combination of a Biden victory and Republican dominance in the Senate would eliminate much of the political uncertainty and thus boost the performance of precious metals with sharply rising stocks and a sharply falling dollar.
On this weekend, an ounce of gold closed at $1949 in New York City, increasing by more than 2.6% and approaching its summer level. As a result of a highly disputed and therefore uncertain American election, the FED is putting pressure on to deploy even more monetary stimulus, and is predicting more good times for precious metals, including gold.
Trump or Biden: How can gold evolve?
Already, in 2019, tweets from Donald Trump were already pushing up gold and it has not stopped rising for several years.
So, after a sharp rise this year and during Donald Trump's presidency, what would a victory for Joe Biden mean?
On the contrary, if Donald Trump is re-elected, the dollar could well tend to rise, driven by a low corporate tax that would benefit investors and a weakening of precious metals, especially base metals driven by trade tensions with China.
In a mixed scenario, with Joe Biden at the head of the United States and a Republican Senate, the financial markets could interpret this scenario as an impasse for the various reforms under way, and thus create only minor jolts.
Let's take a quick look back to the frenetic gold movements at the time of the previous American election in 2016 :
On the night of November 8-9, 2016, the price of gold jumped from $1,270 per ounce to $1,320 between midnight and 4:00 a.m.
It must be said that the election of Donald Trump was a surprise, and the financial markets are not fond of surprises... surprises
Investors who had not anticipated this scenario have then taken refuge from risky investments, and you know the saying: in this case, the oldest safe haven remains gold even if it tends to be overtaken by Bitcoin.
From now on, all predictions are possible. JP Morgan's analysts anticipate two possible scenarios:
A blue wave for the Democrats could cause the price of gold to jump by 5% and make the yellow metal soar because the markets react badly to a tightening of taxation.
If Joe Biden wins but Congress is Republican, then analysts expect a more moderate increase of about 2%.
In the event that Donal Trump is reappointed for an additional term, then the gold price could fall by 5% in parallel with a revaluation of the dollar.
It should be noted that the famous investor Warren Buffet, who was fiercely opposed to gold for many years, invested in Canadian gold producer Barrick Gold during the second quarter sending an important signal to the entire ecosystem.
So, in your opinion, Trump or Biden? Make your bets!
And you, when will there be a gold rush?
While many markets have gone into wait-and-see mode, you're probably wondering if it's the right time to invest in gold?
The price of gold seems to be hesitating, just like the price of silver, which has remained on hold due to the uncertainty of the American election, but seems to be picking up as the announcements on American TV channels go by.
While in the short term, it is therefore possible to observe increased volatility, it is highly likely that the outcome of the American elections will have little effect on the gold price due to the very marked uncertainties on the American market.
In any case, if you want to know how to invest safely and securely in gold today, while participating in the digital transformation and tokenization of raw materials, we have the solution for you : VeraOne, THE French gold-based stablecoin that allows you to combine the best of both worlds.
Thanks to the ecosystem of which it is a part, VeraOne's mission is to promote the instantaneous, free and unmediated transfer of gold between individuals worldwide. And if you've been following this, you'll hear about it regularly in the Alternative Investment Tribune columns.
So, if you too have decided to follow the results of the American elections scrupulously while thinking about your alternative investments, don't hesitate to read us every weekend. And thus, make your confinement a golden opportunity!
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