What Would Biden's Election Win Mean for Gold Stocks?
For starters, keep an eye for rising inflation rates, which tend to bode well for gold prices.
With the US presidential election finally drawing to a close, investors are now preparing for what effect a potential Biden administration will have on the markets. Gold prices ended Friday’s session with the highest weekly gain since July, signalling that the precious metal is finally breaking out of a narrow trading range following months of uncertainty clouding the White House race. For investors in gold — as well as gold mining stocks — a Biden victory is likely to spell good news.
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**Inflation Looming**
Firstly, Biden’s victory almost certainly ensures that the US economy will be the recipient of a large stimulus package. This means two things: a declining dollar and rising inflation — both of which are auspicious for gold investors. Historically, gold is often viewed as a hedge against inflation. The yellow metal is also considered an “alternative currency” to the dollar. [In late October](https://www.cnbc.com/2020/10/22/goldman-sachs-commodities-bull-market-ahead-on-dollar-inflation-risk.html), analysts at Goldman Sachs reiterated the possibility of high inflation risk as we head into the year 2021. The bank is forecasting a bull market for commodities in 2021 based on its outlook for a weaker dollar, inflation, and the prospect of further fiscal stimulus. **Treasury Secretary** Secondly, Biden’s White House team will possibly include Massachusetts senator Elizabeth Warren, who is [said to be making a case](https://www.politico.com/news/2020/10/29/elizabeth-warren-biden-treasury-433620?mkt\_tok=eyJpIjoiTXpNek9URm1NelUwTUdOayIsInQiOiJlcnNnK3o0RTJkcXdzZytHdkdjcWNsRm9vTVJCeU5nNVJkNFI0NlVUUzJwVFQ0S3FcL2hcLzFVVGZLRnBIcWRIV0U2UnNLNitsUm5pZkJCbHZzTTJlNDBKYWZXRjhLZWhNYkQ0RDBreHA5TzhQK2lWWlJua1ZIVXZwcEZjc2ZlZGZsIn0%3D) to become the new Treasury secretary.
Should Warren be appointed to that role, we could see more money printing in the US economy. While still a presidential candidate in 2019, Warren [proposed](https://www.nytimes.com/2019/11/01/us/politics/elizabeth-warren-medicare-for-all.html) a “Medicare for all” healthcare plan costing upwards of $20 trillion. Now, things could always change a year later, but the risk of hyperinflation is totally conceivable somewhere down the road. Again, this bodes well for gold. <% {"name": "BoxNewsletter"} %> **More Upside?** Anticipating further and bigger stimulus packages for the pandemic-hit economy, some analysts remain bullish on gold investments.
"A Biden presidency means that more stimulus is coming. It's just a matter of how much," said Charlie Nedoss, senior market strategist with LaSalle Futures Group. Gold is an asset that has been attracting investors due to an outlook for stimulus and rock-bottom low rates, said Ole Hansen, head of commodity strategy at Saxo Bank A/S, in a [_Bloomberg_](https://www.bloomberg.com/news/articles/2020-11-09/copper-holds-near-two-year-high-as-biden-win-boosts-sentiment) [interview](https://www.bloomberg.com/news/articles/2020-11-09/copper-holds-near-two-year-high-as-biden-win-boosts-sentiment).
More money printing not only means inflation and lower interest rates, but also more “ammunition” for investors in terms of funds, some of which will be allocated to assets such as gold. Another big question is how will the next few months shape up in terms of political and social stability heading into 2021. US Federal Reserve critic and chief strategist Danielle DiMartino expects the current political and social landscape to benefit gold, as it goes hand-in-hand with social disruptions, which he envisions has a big chance of happening following the election result. Fiscal stimulus and national debt are a priority in the United States, which will affect gold prices in a strong way, he added.
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**Gold Seasonality**
One big factor that plays into the hands of gold investors is seasonality, especially when bullion is already on an upward trend. Gold tended to climb 2.4% in November, 1.1% in December, 3.1% in January, and 1.7% in February during the modern bull market years, according to [Adam Hamilton of Zeal LLC](http://www.zealllc.com/). This year could be no different. Similarly, gold stocks exhibit strong seasonality because their price action mirrors that of the metal. Based on the same bull market years, gold stocks have enjoyed average gains of 15.2% between late October to late February.
However, it must be kept in mind that gold has a tendency to spike during election years but slumps in the year post-election.
Now that economic policies are bound for a major shift following the election, it remains to be seen whether the imminent stimulus measures and favorable months will reverse that trend.
**Relentless ETF Inflows**
Another good indication that gold has not lost its luster despite being in a quarter-long slump is rising inflows into gold-backed ETFs and similar products. In October, global holdings in these gold investment instruments rose for the 11th straight month, reaching 1,000 tonnes for the first time ever. Physical gold investment also hit a new all-time high, with gold bar and coin purchases increasing by 49% year-over-year. This is a good sign for gold producers, as the demand side remains strong.
**Impact of Vaccine Breakthrough**
The recently announced Covid-19 vaccine breakthrough may put a dent in the short-term prospects of gold and gold stocks, but as we have seen in the past, a sell-off of accumulated safe-haven assets can be expected with such news. Furthermore, any approved vaccine would take a while to become available to the general public, says Saxo Bank’s Hansen.
“The virus could go away, but that doesn’t mean economic growth will turn around on a dime,” he explains. Over time, calls for further stimulus to resuscitate the global economy will grow. Thus, the inflation and uncertainty narrative is still more likely to prevail, so gold investors may not need to fret over any momentary declines.
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